09:01 PM
Thursday 19 May 2022
I wrote – Shaima Hefzy:
Analysts expected that the Central Bank’s decision to raise interest rates by 2% would contribute to stabilizing the price of the dollar once morest the pound, with the increase in demand for the local currency, with the possibility of the return of dollar flows due to the return of foreign investments in Egyptian debt instruments, “hot money.”
The Monetary Policy Committee of the Central Bank of Egypt decided, during its meeting today, Thursday, to raise interest rates by 2% to reach 11.25% for deposits and 12.25% for lending, in a major blow to confront inflation.
Esraa Ahmed, a macroeconomic analyst at Al-Ahly Pharos Securities Brokerage Company, said that the dollar is expected to go through a phase of relative stability, especially with the absence of a need to further depreciate the pound during the current period.
This was agreed with Ahmed Moati, CEO of “iMarkets” financial consultancy, saying that the demand for the pound in order to link depositors’ funds in the 18% certificate during the coming period will support the dollar’s trading at levels close to its current levels, and if it moves, it will be “a slight decline.” pound or stability.
The value of the pound fell last March by regarding 17% once morest the dollar, following the Central Bank decided to raise interest rates by 1% in an exceptional meeting, followed by the announcement of an investment certificate with a return of 18%, which is the highest in the banking sector.
As a result of the Ukraine war, emerging markets witnessed an exit wave of foreign investments, including Egypt, coinciding with the rise in interest rates in America, and investors’ tendency to the dollar as a safe haven compared to emerging markets.
Prime Minister Mostafa Madbouly estimated the value of the investments that have gone out since the beginning of the year until now at regarding $20 billion.
The central bank may count on raising interest rates by 2% once today, to restore foreign investors in debt instruments, and to attract hot money and dollar inflows once more, but analysts did not agree on the possibility of this being achieved.
Hot money is financial flows from outside the country for the purpose of investing and benefiting from a specific economic situation, such as the low price of the local currency once morest the dollar or the increase in interest.
Analyst Esraa Ahmed believes that the return of foreign investments to government debt instruments depends largely on the investor’s appetite towards emerging markets in general, noting that the matter is not related to Egypt alone, but to the risks of emerging markets in general.
And Esraa expected that “the interest rate hike will have a positive impact on dollar flows.”
Maati explained that raising interest rates will return, but not in intensity, “because we are raising interest rates and America is raising interest, it was possible to bet on an increase in dollar flows in the event of an increase in interest in Egypt only like the past two years,” noting that the main goal now is to stop the bleeding of investments. foreign.
Sahar Al-Damaty, a banking expert, said that the hot money tended to invest in the US dollar following raising interest rates in the strongest economy in the world – with expectations of more hikes until the end of the year, although part of it might return in the short term to Egypt, but we have to follow developments, whether in world or in emerging markets.
But Hani Tawfiq, an economist, told Masrawy, he expected that foreign investments in hot money would not return, adding: “The economy should not depend on stabilizing the exchange rate and raising interest rates by relying on hot money.” Playing with monetary tools to control the exchange rate has not proven useful in any country. “.
He added, “Foreigners will not return to government debt instruments unless the central bank fixes the dollar’s price for two or three years. The investor will be afraid to enter investments at the current dollar price, then he may be surprised by the dollar’s price change as happened last year, so they will not return.”
Usually, hot money enters the form of investments in treasury bills or bonds, which are tools through which the government borrows, or in the shares of companies listed on the stock exchange, to take advantage of the low price of the local currency once morest the dollar or the increase in interest.
Foreign investors benefit from the high price of the dollar in Egypt, because they can invest in realizing large gains from purchasing debt instruments through which the government borrows to bridge the deficit between expenditures and revenues.
