2024-01-10 15:09:00
05:09 PM Wednesday, January 10, 2024
Written by Manal Al-Masry:
Bankers and analysts whom Masrawy spoke to expected that the Central Bank would raise interest rates by 2% and 5%, whether in its extraordinary meeting or in the regular meeting of the Monetary Policy Committee next February, coinciding with the return to a flexible exchange rate policy – that is, lowering the pound once morest the dollar.
They explained that raising the interest rate would reduce the negative return on customer savings, and absorb inflationary pressures – that is, an increase in commodity prices – due to the expected decline in the value of the pound once morest the dollar, with the imminent reaching of an agreement with the International Monetary Fund to implement the two postponed reviews in preparation for disbursing regarding $700 million to Egypt.
The Central Bank raised the interest rate by 11% on 6 occasions during the last two years, including 8% on 4 occasions in 2022 and 3% on two occasions in 2023, bringing the interest level to 19.25% on deposits and 20.25% on lending.
Usually, the Central Bank’s raising of interest rates coincides with its return once more to the exchange rate flexibility policy that began in March 2022 following departing from it during the Corona years 2020 and 2021, which led to an increase in the price of the dollar by regarding 96% once morest the pound, jumping from 15.76 pounds to nearly 31 pounds by the end of the year. Bank transactions today.
Hani Genena, chief economist and investment strategist at Cairo Capital, a securities trading company, expected that the Central Bank would raise the interest rate all at once to 5%, shocking the market, whether in its extraordinary meeting or its regular meeting, with the aim of providing a real return that compensates clients for the high inflation rate simultaneously. With the beginning of exchange rate flexibility.
The annual inflation rate last year recorded a record high at the city level, near 39%, before it fell to 33.7% at the end of last December, according to data from the Central Agency for Public Mobilization and Statistics.
The annual inflation rate is still far from the Central Bank’s targets at 7%, with an increase or less of 2% during the fourth quarter of 2024, and will decrease to 5% with an increase or less than 2% during the fourth quarter of 2026.
A government document issued by the Council of Ministers this week, which will be presented for community dialogue, revealed a target inflation rate of 9.2% starting from 2024 to 2028, to decline to 5% by 2030.
Genena explained that the Central Bank’s raising of the interest rate will come as part of a package of expected measures with the near flexibility of the exchange rate and the price of the pound reaching the fair point once morest the dollar, which may contribute to eliminating the black market and unifying the exchange rate.
He added that this will come with banks also offering certificates with interest rates of up to 30% and 32% in exchange for Egyptians working abroad transferring dollars to their accounts in pounds, but on the condition that the citizen makes sure that the dollar is under the control of Egyptian banks.
Stressing that all these tools will help the Central Bank eliminate the black market during the second half of this year.
The price of the dollar is trading in the parallel market (the black market for currency trading) between 53 and 55 pounds, a difference of regarding 24 pounds from its official price in banks, which some see as an exaggerated price due to the increase in speculation and the shortage of foreign exchange in the banking sector, according to what observers said earlier, To Masrawy.
Mahmoud Nagla, Executive Director of Money Markets and Fixed Income at Al Ahly Financial Investments, said that the Central Bank raising the interest rate will depend on Egypt soon reaching an agreement with the International Monetary Fund to resume the loan program following postponing the implementation of the two reviews scheduled for last March and September.
He explained that if an agreement is reached between Egypt and the International Monetary Fund, the Central Bank will raise the interest rate by 2% or 3% in its extraordinary meeting or its regular meeting to coincide with the return to exchange rate flexibility, and without that, the situation will remain unchanged.
Bankers and economists whom Masrawy spoke to earlier this week suggested that the official price of the dollar once morest the pound in banks during the first quarter or half of this year would reach between 38 and 52 pounds per dollar, with the aim of eliminating dollarization and closing the dollar gap.
Egypt appears to be close to implementing the agreement with the International Monetary Fund following Kristalina Georgieva, Director General of the International Monetary Fund, met with a high-level delegation from the Egyptian government that includes Hassan Abdullah, Governor of the Central Bank, Dr. Mohamed Maait, Minister of Finance, and Rania Al-Mashat, Minister of International Cooperation, along with Mahmoud Mohieldin, Executive Director. At the International Monetary Fund, according to a statement from the Ministry of Finance today.
Georgieva said, during the meeting, that the International Monetary Fund will remain a strong partner to Egypt in these difficult times, and at the same time the Egyptian delegation held good, constructive and positive discussions with Janet Yellen, US Secretary of the Treasury.
Najla added that raising the interest rate will aim to reduce the negative return gap on customers’ savings following the rise in the inflation rate, as well as absorbing inflationary pressures resulting from the expected decline in the price of the pound once morest the dollar.
Mohamed Abdel-Al, a banking expert, expected that the Central Bank would raise the interest rate by 4% the first two times during the first quarter of this year, whether at its meeting in February or March next year, and another 2% during the second quarter, with the aim of creating an attractive return on savings in the Egyptian pound.
Abdel-Al linked Egypt’s return to exchange rate flexibility to the availability of foreign exchange earnings of no less than 5 or 8 billion dollars in the hands of the Central Bank to avoid the price of the dollar reaching unexpected levels and avoid the risks of increased speculation on the black market.
Read also:
Wael El Nahhas expects the price of the dollar to rise to 52 pounds in the first quarter of 2024
To confront the black market.. What is the expected price of the dollar once morest the pound in 2024?
1704906813
#Lowering #pound.. #Expectations #large #interest #rate #hike #upcoming #coffee #meeting
