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Tuesday, 20 August 2019

Up to 80% of Suez Canal CDs to be reinvested in September: Sources

Up to 80% of Suez Canal CDs to be reinvested in September -sources: A large majority of Suez Canal certificate of deposits (CDs) holders will reinvest the money into new certificates after they mature on 4 September, analysts and bankers told Reuters’ Arabic service. Mona Moustafa, manager at internet stock trader Arabeya Online, said that up to 80% of CDs may be reinvested, while a small minority might put the money into real estate instead. An anonymous government bank analyst said that this was because of CDs’ appeal among bank customers without investment experience. "The holders of the Suez Canal investment certificates do not have the culture of investing in the stock market and their money is not the size that allows them to invest in real estate, so I expect the funds to enter again," the source said. The Suez Canal Authority raised more than EGP 60 bn in 2014 by offering five-year CDs to Egyptians at a 12% interest rate. The proceeds were used to fund the construction of the new Suez Canal and several new tunnels.

The CBE could take the CDs into consideration when it meets Thursday to review interest rates. “The central bank may resort to stabilization to preserve the source of debt income to the government and to ensure that the Suez Canal funds are not in the hands of the people, which may raise inflation,” Moustafa said.

But it’s a “weak possibility”: Shuaa Securities’ Esraa Ahmed told Enterprise that there’s a chance that the CBE will factor the CDs into their decision-making, but said that it’s a “weak possibility” that it alone will persuade them to leave rates on hold. And the bank analyst said that a rate cut is unlikely to cause CD holders to bail out. “Although interest rates are expected to decline at the next CBE meeting, this will not prevent the investment certificates' beneficiaries from reinvesting in certificates again because saving products are the best and safest place to invest,” they said.

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