07:00 pm
Saturday, March 25, 2023
I wrote – Manal Al-Masry:
Attention is drawn to the upcoming decision of the Central Bank of Egypt to decide the fate of the interest rate at the second meeting of the Monetary Policy Committee in 2023, next Thursday, following the inflation rate recorded a record high compared to recent years, and its American counterpart slowed down the rate of interest increase at its last meeting.
Bankers’ expectations, Masrawy spoke to, varied between the central bank’s tendency to raise the interest rate to 3%, and the introduction of a new certificate to curb inflation, and fixing the interest rate because it is not economically feasible to raise it now.
The annual core inflation rate rose to its highest level, reaching 40.3% in February, compared to 31.2% in January, according to a statement issued by the Central Bank earlier this month.
The annual inflation rate in Egyptian cities jumped last February to 31.9%, compared to 25.8% last January, according to a statement from the Central Agency for Public Mobilization and Statistics earlier.
And the Federal Reserve (the US Central Bank), in its second meeting this year, last Wednesday, decided to raise interest rates for the ninth time in a row by 0.25%, which is a lower rate of increase than expected, to record interest on the dollar at a level between 4.75% and 5%. .
Raise interest by 3% to curb inflation
3 of the 4 bankers Masrawy spoke to expected that the Central Bank would raise the interest rate by between 2% and 3% at its next meeting before the end of this week to curb inflation.
Mohammed Badra, former CEO of a Gulf bank, predicted that the central bank would raise the interest rate by 3% at once at its next upcoming meeting with the aim of curbing the inflation rate – that is, controlling the price increase – especially following fixing the interest rate at its last meeting.
The Central Bank decided to fix the interest rate at the first meeting of the Monetary Policy Committee during the current year on February 2, following raising it 8% over 4 times during the past year, the last of which was 3% last December, to record its interest rate of 16.25% for deposits and 17.25% for lending.
Badra said, to Masrawy, that the inflation rate – the price increase – is likely to increase during the coming period, with the increase in the consumption rate in the month of Ramadan and reading the impact of raising the price of gasoline and gas, which necessitates the central bank to raise the interest rate as a precautionary measure to absorb inflationary pressures.
He added that raising the interest rate is one of the tools in the hands of the Central Bank to tame inflation and boost investment in the Egyptian pound.
The Ministry of Petroleum and Mineral Resources had announced, in the early hours of Thursday, March 2, an increase in gasoline prices by 75 piasters per liter of 80 and 95 petrol, and an increase in the price of a liter of 92 petrol by EGP 1, and an increase in gas supply for cars to 4.50 EGP / meter, while it decided to fix the price of diesel. Supplier of electricity and food industries.
Mahmoud Najla, Executive Director of Money and Fixed Income Markets at Al-Ahly Financial Investments Company, agreed with Mohamed Badra’s expectations that the Central Bank would raise the interest rate to 3% at its next meeting to curb inflation.
Najla explained that the high rate of inflation indicates an increase in the liquidity rate in the market, which may prompt the Central Bank to raise the interest rate to absorb this liquidity and reduce purchase demand in exchange for stimulating investment in banks.
And Sahar El-Damaty, former Vice President of Banque Misr, suggested that the Central Bank would raise the interest rate within the limits of 2% at its next meeting to curb inflation, noting that determining the rate of increase will be subject to studies and data available in the hands of the Central Bank.
Al-Damati explained, to Masrawy, that the initiative to support industry and agriculture announced by the government at an interest rate of 11%, for which a financing tranche of 150 billion pounds has been allocated, will contribute to reducing the suffering of the private sector from raising the interest rate and neutralizing the effects of increasing interest on the rise in commodity prices, but the initiative needs to be reconsidered. Funding limits to benefit larger segments.
Installation is the best option
Mohamed Abdel-Aal, a banking expert, contradicted previous expectations, and suggested that the Central Bank would fix the interest rate at the Monetary Policy Committee meeting next Thursday for the second time in a row, due to its ineffectiveness in curbing inflation.
Abdel Aal told Masrawy: “On the level of my personal vision and global developments, the interest rate must be fixed at the next meeting and until the end of this year in order to avoid the negative consequences of increasing the interest rate on the inflation rate at a greater rate, given that the increase in the cost of interest is part of the pricing of the final product.”
Abdel Aal added that the treatment of inflation will not be done by raising the interest rate, as its reasons are not due to the increase in demand (which witnessed a significant decline, according to what he said), but to the supply shock – the effect of the depreciation of the pound on the increase in commodity prices – rather, raising interest will affect the competition of exports and will be reflected in the increase in prices. Trade balance deficit.
Abdel Aal stated that the liquidity rates in banks are invested in government debt instruments – treasury bills and bonds – and therefore there is no concern regarding their consequences on increasing the rate of inflation. Rather, the successive interest hike may cause the economy to stagnate (declining production and increasing prices).
Submit a new certificate?
The Central Bank may direct the National and Egyptian Banks – its arms in implementing monetary policy and controlling the exchange market – to issue a new certificate with high interest rates of up to 25% and 27% following the next interest-raising meeting to absorb the liquidity resulting from the 18% certificate, according to what Mohamed Badra told Masrawy.
He explained that his expectations for the Central Bank issuing a new high certificate are due to the bank’s desire to absorb liquidity from the 18% high-yield certificate in banks without other havens such as real estate or gold, or spending it on consumer goods, which increases the pace of inflation.
The certificate maturity of 18% in Al-Ahly and Egypt Banks started from last Wednesday and will continue until the beginning of next June, with the last certificate maturity amounting to 750 billion pounds.
Badra said that one of the solutions to motivate Egyptians working abroad to increase their remittances to Egypt, which is witnessing a decline, is to issue a certificate with an attractive interest rate in the Egyptian pound that motivates them to sell the currency and save in the local currency instead of the dollar.
While Mohamed Abdel-Al and Sahar El-Damaty ruled out that the Central Bank offered a new certificate with a higher interest rate than what is prevailing in the market today, due to its negative consequences more than its benefits, according to them.
Abdel Aal told Masrawy: “No new certificates should be issued with more than what is currently prevailing in the banking system in order to avoid their negative effects on increasing the inflation rate from the high return, which will be translated into an increase in the purchase rate.”
For the first time in many years, some public and private banks have recently returned to offering certificates with a high interest rate of up to 18% and 22% to compete with the certificates offered by the National and Egyptian Banks.
The highest interest rate provided in Al-Ahly and Egypt Banks was recorded on the triple certificate with 16% interest paid monthly, 16.25% paid quarterly, 16.5% paid semi-annually, and 17.25% paid annually.
Abdel-Al explained that allowing the Central Bank of banks to offer new high-yield certificates, starting from last month, aims to give an opportunity for banks to promote these certificates, and to recover their previous customers who went to the 18% certificate in Al-Ahly Bank and Egypt a year ago, and thus contributes to reducing the operating cost. The money is on the two largest government banks.
Sahar El-Damaty supported Mohamed Abdel-Al’s opinion that it is necessary not to issue a new certificate with a higher interest rate than the current one in banks, in order to avoid the return of the phenomenon of breaking certificates from private banks in favor of the two government banks, and because it is not economically feasible.