Government borrowing to plug deficit has pushed banks to the limit of their ability to lend
Egyptian treasury bills yields slid for a third week at a 6 billion Egyptian pound ($866 million) auction on Sunday in the continuing afterglow of an April 10 pledge by Qatar and Libya to lend Cairo 5 billion pounds to support its budget.
Egypt has been running down its foreign reserves and borrowing from abroad to prop up its currency and plug a budget deficit. Government borrowing to plug the deficit has pushed local banks to the limit of their ability to lend.
One analyst said the interest rate decline was probably bottoming out.
"I don't think this will go on for long as the economy is still in critical condition and demand has fallen slightly this week as evidenced by a lower bid-to-cover ratio on all auctions," said Youssef Kamel, a fixed-income analyst at Rasmala.
"We may see some speculation regarding the possibility of another rate hike by the central bank in its MPC meeting on May 7."
At its last meeting on March 21, the central bank's Monetary Policy Committee (MPC), seeking to curb soaring inflation and slow Egypt's sliding currency, raised its key overnight interest rates by 50 basis points, the first such increase in over a year.
The average yield on three billion Egyptian pounds of 91-day treasury bills dropped to 13.018 percent at the Sunday auction from 13.317 percent a week earlier, the central bank said .
The yield on three billion Egyptian pounds of 266-day treasury bills fell to 13.743 percent from 14.201 percent.
The 91-day auction was covered only 1.5 times compared with 2.3 times at the previous week's auction, while the 266-day auction was covered 1.6 times compared with 3.4 times a week earlier, Kamel said.
Qatar said it would buy $3 billion in Egyptian bonds and Libya agreed to extend a five-year interest-free loan of $2 billion.