scheduled to take place Monetary Policy Committee of the Central Bank of Egyptits last meeting before the end of 2022, tomorrow, Thursday.
Analysts expect, according to recent surveys, that policy makers will conclude 2022 with a significant increase of 200 basis points in interest rates to support the Egyptian pound against the dollar and other foreign currencies, and to curb rising inflation.
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A Archyde.com poll conducted on Tuesday predicted that the Central Bank of Egypt would raise the interest rate on overnight deposits by 200 basis points tomorrow, Thursday, as part of its attempts to curb rising inflation after the sharp decline in the value of the local currency. The average forecast, in a poll of 12 analysts, indicated that the Central Bank of Egypt would raise interest rates on deposits to 15.25%, and lending interest to 16.25%, at the periodic meeting of the Monetary Policy Committee.
The central bank raised interest rates by 200 basis points at a meeting on October 27. On the same day, the local currency depreciated 14.5%, and the central bank announced that it had reached a staff-level agreement on a $3 billion financial support package with the International Monetary Fund.
Despite the devaluation of the local currency, the gap between its price against the dollar continued to widen in the official and parallel markets, as the price of the dollar reached about 24.70 pounds in banks and more than 36 pounds in the black market. The official rate of the Egyptian pound against the dollar was 19.7 before the devaluation in October.
In the same context, the research department of the “HC” Securities and Investment Company suggested that the Central Bank of Egypt would raise interest rates by 200 basis points in order to confront inflation at its next meeting scheduled to be held tomorrow, Thursday.
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According to a recent research note, HC’s banking and macroeconomics analyst, Heba Mounir, suggested that the Monetary Policy Committee would raise the interest rate by 200 basis points in order to confront inflation and attract inflows benefiting from price differences.
Inflation accelerated in November, rising by 2.3% month-on-month and 18.7% year-on-year, exceeding estimates of 16.5%.
The acceleration in inflation rates, coupled with the current shortage of foreign capital inflows, led to an expected annual inflation rate of 19.1% in December.
Also, the price of the Egyptian pound has decreased by approximately 7% since October 27, 2022 until now, and 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.
Mounir expected that the rate of external debt to GDP would rise to 38.8% in the fiscal year 2022/2023 from 37.7% in the fiscal year 2021/2022, according to official estimates.
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Net foreign exchange reserves declined by nearly 18% on an annual basis 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.
Remittances from Egyptians abroad decreased last August by 8% on a monthly basis, to reach $2.2 billion.
The net foreign liabilities position of the banking sector, excluding the central bank, widened to $16.4 billion in October from $5.0 billion at the same time a year earlier.
Mounir indicated that deposits in foreign currencies, not included in official reserves, fell to $1.67 billion in November from $11.5 billion in the previous year.
While the schedule of repayment of foreign debts owed by Egypt indicates an amount of $20.2 billion during the fiscal year 2022-2023.
The average yield on the 12-month T-bills after tax was 15.99% (including a 15% tax rate for US and European investors) in the December 8 offering with a bid-to-cover ratio of 3.20x, indicating the need to raise yields.
While Egyptian treasury bills for the 12 months currently offer a negative real return of 0.1%, calculating the expected increase of 200 basis points will attract inflows benefiting from price differences.