How Egypt plans to deepen financial markets with CONIA

The Egyptian monetary authority has announced steps taken to reposition its financial markets through the introduction of CONIA, the Cairo Overnight Interbank Average benchmark.

Rami Abulnaga, sub-governor for markets and external relations at the Central Bank of Egypt, welcomed the introduction of CONIA as “an important milestone to support money market reform that is consistent with CBE senior management’s vision”.

According to Egypt’s central bank, CONIA will enhance development of new products, leading to a more resilient financial system.

The benchmark billed to be published starting October 2019 was supported by the European Bank for Reconstruction and Development (EBRD), due to it being an innovation that promotes capital and money markets reform.

The EBRD noted that the introduction of CONIA which is a risk free interest rate benchmark, will lay the foundation for the enhancement and the improved efficiency of its markets.

“This move is in line with the international movement towards developing risk free rates as the -IBOR benchmarks are being phased out,” the EBRD explained in a publication.

The bank further explained that the new benchmark, the Cairo Overnight Interbank Average (CONIA), was developed by the Egyptian Money Market Contact Group (MMCG), which brings together the central bank, commercial banks and the European Bank for Reconstruction and Development (EBRD). 

CONIA reflects rates on interbank transactions that are virtually risk free because of their very short tenors.

According to EBRD treasurer, Axel van Nederveen, the introduction of CONIA made an important contribution towards the development of the Egyptian financial markets.

“Similar Risk-Free rates had already been developed for major currencies in other monetary jurisdictions, he noted.

The transparency and robustness of the benchmark will support the development of a broader set of products for financial sector participants and improve the resilience of the capital markets and the overall economy. 

The Egyptian Money Market Contact Group was set-up in 2018 to promote safe and efficient local currency money markets.

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Following the introduction of CONIA, the group will now focus on developing instruments that will use CONIA. It will also work to enhance domestic money markets and to ensure that CONIA continues to provide an accurate reflection of underlying market conditions.