Egyptian Central Bank
Egypt’s economy
Weights of an increase of between 200 and 300 basis points
Expectations regarding the meeting of the Monetary Policy Committee at the Central Bank of Egypt next Thursday tend to increase interest rates on the pound by a large percentage.
The second meeting of the Monetary Policy Committee will be held this year in light of high inflation rates and the continuation of the US Federal Bank’s policy of monetary tightening, following raising interest rates during the past week by 25 basis points, so that interest on the dollar ranged between 4.75 and 5%.
Most central banks tended to increase their interest rates following the US Federal Reserve’s decision.
In December, the central bank raised its benchmark deposit rate by 300 basis points – the highest rate since 2016 – to 16.25%, but has kept it there since.
And the core inflation rate in Egypt recorded, during last February, 40.26%, on an annual basis, which is the highest level it has recorded in its history, according to data from the Central Bank of Egypt.
Data from the Egyptian Central Agency for Public Mobilization and Statistics showed, on Thursday, March 9, that the annual consumer price inflation in Egypt’s cities rose to 31.9% in February, from 25.8% in the previous January.
The annual inflation rate for the entire republic recorded 32.9% for February 2023, compared to 10% for the corresponding month of the previous year.
Great rates
Researchers and economists expected that the Central Bank of Egypt would resort to raising interest rates by large rates ranging between 200 and 300 basis points to counter the high rate of inflation and the absorption of liquidity from the market, which resulted from the expiry of some investment certificates offered by banks earlier.
In the last meeting of the Monetary Policy Committee held by the Central Bank of Egypt on the first of last February, the committee decided to keep the rates of deposit and lending returns for one night, as well as the price of the main operation of the Central Bank, at levels of 16.25%, 17.25%, and 16.75%, respectively. It was also decided to keep the credit and discount rate at 16.75%.
However, analysts believe that these interest levels are not attractive to foreign investors to buy government debt securities in light of the erosion of real interest, and therefore they are likely to raise interest rates by the Central Bank of Egypt.
Alia Moubayed, chief economist at Jefferies International, expected during an interview with Al-Arabiya earlier this month that the Central Bank of Egypt would raise interest rates between 200 and 300 basis points.
The Central Bank of Egypt targets an inflation rate of 7% (±2%) by the fourth quarter of 2024.
Investor impatience
In the face of investor impatience and slow progress in pursuing asset sales, the government said it would start the process of offering two military companies, and plans to list 4 other large companies.
The central bank may have to raise interest rates by as much as 300 basis points when it meets later this month, following inflation in February far exceeded expectations, according to Goldman Sachs.
And in February, policymakers defied most analyst expectations by keeping interest rates unchanged for the first time since September, saying they were assessing the impact of 800 basis points of increases in 2022.
Tougher monetary policy
Goldman Sachs economist Farouk Sousse revealed, in a previous report, that “containing inflation expectations and, in particular, improving domestic liquidity in foreign currencies to relieve chronic pressure on the Egyptian pound, will require the Central Bank of Egypt to pursue a more stringent monetary policy in the coming months.” coming”.
Prior to that, Goldman Sachs did not rule out an unscheduled increase in interest rates in response to pressure on inflation and the pound.
After the latest inflation data, economists at Naim Brokerage said an “emergency meeting” might precede an increase of regarding 200 to 300 basis points.
The report indicated that inflation-adjusted interest rates in Egypt are turning negative, and escalating price gains have pushed Egypt’s real interest rates below zero.