Cash cushion will help offset $12bn debt repayment for 2018
Egypt foreign reserves surge to record levels following Eurobond sale
Egypt’s foreign reserves surged to a record in February, helped by a recent international bond sale, providing a cash cushion for the country as policymakers begin to cut interest rates.
Reserves jumped by $4.3 billion to $42.5bn, the central bank said on Sunday. Bank officials said last month’s $4bn Eurobond sale was only one contributor to the increase. A marked improvement across a range of economic indicators had also provided a boost, sub-governor Rami Aboul Naga told Bloomberg News. He did not elaborate.
The increase will help offset the impact of $12bn in planned debt repayment this year as well as potential capital outflows as a result of lower interest rates on local debt, according to Hany Farahat, senior economist at CI Capital in Cairo. The government is also preparing to raise as much as €1.5bn ($1.2bn) in the coming weeks, taking advantage of lower borrowing costs in Europe.
Egypt’s foreign reserves have soared since the central bank floated the pound in November 2016 and secured a $12bn loan deal with the International Monetary Fund to ease a severe dollar shortage that had hampered trade and business activity.
“This is a whopping jump in reserves that enhances confidence in the recovery,” Mr Farahat said.
Egypt cut benchmark interest rates last month for the first time since floating the pound, starting a widely anticipated easing cycle after record-high borrowing costs helped to damp inflation and attract $20bn into local-currency debt.
Falling interest rates in Egypt, coupled with expectations that the US Federal Reserve will move in the opposition direction, have raised the prospect that overseas investors will lose their appetite for Egyptian local-currency debt.
But the surge in reserves “definitely facilitates the reduction in policy rates this year and minimizes the risk of currency outflows as rates decline,” Mr Farahat said.