Talks about a new expected float in the Egyptian pound against the dollar dominate the Egyptian economic circles, following the US interest rate hike.
On Wednesday, the US Federal Reserve raised the main interest rate by half a percentage point, in the largest increase the board has made in 22 years.
Amid great anticipation for an official Egyptian reaction in the coming hours to the US Federal Reserve raising the interest rate, and whether the Central Bank will decide to raise the interest rate, economic experts believe that the Central Bank of Egypt will raise the interest rate.
The Egyptian economic expert, Hanan Ramses, says that the Egyptian Central Bank will resort to raising the interest rate during the coming period, given that all economies around the world have begun to apply this procedure to curb global inflation, which has begun to reach very dangerous rates that it has not reached for many years, whether In the United States or Europe, according to “Sputnik”.
Raising interest in Egypt
She added: This measure will also be resorted to by the Central Bank of Egypt to overcome the negative effects of the devaluation of the pound against the basket of foreign currencies and the decrease in its purchasing power, and the inflation trend that is increasing day by day, due to the rise in the prices of basic commodities, services and others, all of which calls on the Central Bank to seriously consider raising interest rate.
She explained that the increase in the interest rate this time will not be by 1% as it happened the previous time, but it will rise significantly this time, and the evidence for this is that the Central Bank allowed national banks to accept deposits with an interest rate of 18%, if the interest rate is calculated with the inflation rate that The central bank grants it to the dealing banks at the present time. We will find that in that case the interest will be negative, because today we are talking about an inflation rate that exceeds 10%.
Expected interest rate
The economic expert believes that the rate of raising the interest rate will be between 2-3%, and this ratio will have a very negative impact, because it will lead to the flight of capital from the stock exchange to the banks because it is less risky and higher in return, and it will carry the state’s general budget with a strong deficit, because all A 1% increase in interest carries the state billions of pounds, because it is the largest borrower from the banking sector.
She stressed that raising interest is one of the tools for the ability to continue obtaining financing from abroad, because raising interest on borrowing from within will also occur in the process of borrowing from abroad, and this also causes major problems in the process of balancing the pound in the market.
We have recently noticed that the dollar has started to rise significantly against the pound, and we have begun to hear again about the black market and the regular market, as it leads to the flight of investments from the Egyptian market, so raising the interest rate may be inevitable and not by a small percentage.
pound float
The economist explained that raising the interest rate would certainly reduce the value of the pound against foreign currencies, as signs of this began with the price of the dollar on the black market reaching more than 20 pounds.
The dollar may not rise much against the pound, if the Gulf states intervene to supply Egypt with foreign exchange reserves with deposits and investments, the ability to weigh the pound against other foreign currencies, and subject the dollar to supply and demand, unless the central bank intervenes with a package of measures related to import operations from Overseas, export policies, control and accounting for entry and exit operations in order to control the currency.
Or hard currencies are pumped into the banking market to make people aware that the supply of dollars is greater than what is required so that speculation and rush to buy do not occur.
Egypt .. the highest interest in the region
The Egyptian economic expert, Mohamed Nasr Al-Hwaiti, stressed the same opinion, that the Central Bank of Egypt may resort, in the coming days, to raising the interest rate by a rate ranging between 0.5-1%, depending on the percentage that the US Federal Reserve will raise.
He stressed that the problem is not in the rate that the US Federal Reserve will raise, for even if the US interest rate was raised for a year and we kept following it, we would still be the highest interest rate in the region.
He pointed out that the official banking system resorts to raising interest rates in cases including withdrawing liquidity from the market to curb inflation. There are two types of inflation, inflation resulting from excess demand and lack of supply.
He explained that the existing inflation in Egypt is caused by a shortage in supply, because the axioms of economic theories say that raising interest rates for the second time will lead the country to a state of stagnation resulting from inflation, expecting a new movement of the exchange rate during the coming period.