Two analysts expected the Central Bank of Egypt to cancel its regular meeting next Thursday, following it decided to raise the interest rate on Monday in an exceptional meeting.
An analyst at one of the largest investment banks in Egypt – who preferred not to be named – said that in view of a similar situation when the Central Bank decided to liberalize the exchange rate in 2016 – the Central Bank held an exceptional meeting and did not hold its periodic meeting, expecting the same scenario to be repeated this week.
In response to a question if the Central Bank will raise interest rates once more next Thursday if the meeting takes place, Hani Tawfiq, an economist, told Zawya Arabi, “No.”
The Central Bank was scheduled to meet on March 24, following the US Federal Reserve’s decision to increase the interest rate last week, by 0.25%, a step followed by Gulf central banks.
why now?
The analyst, who preferred not to be named, explained the interest rates for the first time in regarding 5 years, as “in response to the requirements of the International Monetary Fund by moving the price of the dollar once morest the pound and reducing subsidies, and it appears that Egypt is on the way to a new agreement with the IMF to confront inflationary pressures and repercussions.” Russia and Ukraine war.
Radwa Al-Swaify, head of research at Al-Ahly Pharos Securities Company, said in a brief statement today, that “the central bank raised interest rates cautiously, taking into account the impact on the financial budget and GDP growth,” describing it as a bold decision in the right direction, and showing an immediate political response. of global developments, and that the tightening of monetary policy, in light of the expected inflation trends, is a must.
After the Central Bank’s announcement, the average price of the dollar rose to 17.5 pounds, compared to 15.74 pounds yesterday.
The analyst said, “The price of the dollar rose by regarding 11%, and it is expected that its price will trade during the coming period in the range of 18 pounds, if we take into account the estimates that the price of the pound is valued at more than 15% of its real value.”
El-Swaify explained, “The dollar’s move to the level of 17.5 pounds, which is the fair value of the exchange rate, using several methods, and the market had widely expected it. The weakness of the currency should have a positive impact on dollar flows to Egypt.”
Inflation absorption
The analyst pointed out that the announcement of the National Bank of Egypt and Egypt, offering a savings certificate with a return of 18% for one year, is an attempt to absorb part of the inflationary pressures arising from the rise in prices and the expected increase in the prices of imported goods as a result of the dollar’s movement.
Radwa Al-Swaify said that the certificates of deposit offered by public sector banks aim to reduce liquidity in the market and encourage savings in the local currency, in addition to compensating savers for the expected rise in inflation.
But the analyst believes that “it will not be enough because the certificate’s term is one year, and the high prices are not the result of increased demand, so they can be controlled by raising the interest.”
(Prepared by: Shaima Hefzy, Editing: Yasmine Saleh, contact: Yasmine.saleh@lseg.com)
