11:11 p.m
Sunday, December 18, 2022
Books – Mustafa Eid:
HC Securities and Investment Company expected that the Central Bank would raise interest rates by 2% during the last meeting of the Monetary Policy Committee this year, next Thursday, in order to confront inflation.
The next meeting comes after the Central Bank raised interest rates by 2% during an extraordinary meeting on Thursday, October 27, which was accompanied by the announcement of a flexible exchange rate regime that is subject to supply and demand mechanisms, which led to a significant decline in the pound, to raise the price of the dollar since this day. Until last Thursday’s trading, it increased by 25.2%.
After the October hike, interest rates at the Central Bank reached 13.25% on deposits and 14.25% on lending.
“We expect the Monetary Policy Committee to raise the interest rate by 200 basis points in order to counter inflation and to attract inflows that benefit from price differences,” said Heba Mounir, banking and macroeconomics analyst at HC Securities and Investment.
She added: “Inflation accelerated in November, rising to 2.3% m/m and 18.7% y/y, exceeding our estimate of 16.5%. This acceleration, coupled with the current lack of foreign capital inflows, led to our expectation of an annual inflation rate of 19.1% in December.
Heba Mounir stated that the value of the Egyptian pound decreased by 36.2% from the beginning of the year to date due to the accumulated pressures on the Egyptian balance of payments and the increase in external debt obligations.
And she indicated that the ratio of external debt to GDP is expected to rise to 38.8% in the fiscal year 2022-2023 from 37.7% in the fiscal year 2021-2022, according to official estimates.
Heba Mounir indicated that net foreign exchange reserves declined by approximately 18% year-on-year in November to $33.5 billion, with an increase of 67.7% in gold reserves on an annual basis, compared to a 22.3% decline in foreign currencies on an annual basis.
Mounir said that among these pressures is also the decrease in remittances of Egyptians abroad for the month of August, by 8% on a monthly basis, to reach $2.2 billion, in addition to the widening of the net position of foreign liabilities of the banking sector, excluding the Central Bank, to $16.4 billion in October from $5 billion. at the same time in the previous year.
She added that deposits in foreign currencies, which are not included in official reserves, also decreased to $1.67 billion in November from $11.5 billion in the previous year.
Mounir mentioned that the average return on the 12-month Treasury bills after tax reached 15.99% (taking into account the 15% tax rate for US and European investors) in the December 8 offering with a bid-to-cover ratio of 3.20 times, indicating the need to raise returns.
The 12-month Egyptian treasury bills currently offer a negative real return of 0.1%; Calculating the expected increase of 200 basis points will attract inflows benefiting from price differences, according to Heba Mounir.