Egyptian treasury bill yields jumped by around 40 basis points at an auction on Sunday, in further sign that the government's burgeoning need for finance was straining the liquidity of local banks, bankers said.
Egypt's finance minister said last month local banks had nearly reached the maximum they could lend to cover the country's budget deficit, which has been inflated by demands for higher spending in the wake of Egypt's uprising early this year.
After the uprising, the government increased subsidies on some goods and agreed to raise the pay of state workers at a time when a collapse in tourism and foreign investment was reducing tax revenue.
At Sunday's auction, the average yield on LE2 billion (US$334.7 million) in 91-day T-bills rose to 12.781 percent from 12.385 percent last week, the central bank said.
The yield on 3.5 billion pounds of 273-day T-bills rose to 14.251 percent from 13.840 percent on 1 November.
Yields on 91-day bills have risen from around 11 percent in April. In September they climbed briefly above 13 percent before falling back again.
"This squeeze of liquidity goes up and down and is not a continuous thing," one banker said.
He added that the government, once it raises funds from T-bill sales, was aggravating the squeeze by delaying payments on money it owes to bank customers, who normally immediately re-inject the funds into the banking system.
"As long as money is lent to someone it goes simply from one hand to the other, but stays within the system," he said.
Another factor affecting liquidity was the size of T-bill repurchases.
The central bank had also not been increasing the size of its weekly T-bill repurchases to match the size of new T-bill issues, he said.
The central bank introduced its system of weekly seven-day repurchases of T-bills in March to keep short-term interest rates under control.
The government forecasts a budget deficit of 8.6 percent of GDP in 2011/12 but economists say that figure is optimistic.
