04:45 PM
Saturday 12 March 2022
I wrote – Manal Al-Masry:
Bank clients are awaiting the Central Bank’s decision to decide the fate of interest at the upcoming Monetary Policy Committee meeting on March 24th, due to the turbulent global conditions and their repercussions on the Egyptian market.
The opinions of bankers who spoke with Masrawy about the central bank’s direction between fixing and raising interest rates in the next meeting, after the inflation rate recorded a new increase greater than the planned due to the Russian war on Ukraine and its negative consequences on the global economy.
The Monetary Policy Committee of the Central Bank had fixed interest rates in the bank during its last 10 meetings (including 8 meetings held in 2021) to reach the level of 8.25% for deposits and 9.25% for lending.
Sahar El-Damaty, former Vice President of Banque Misr, said that the Monetary Policy Committee of the Central Bank is facing a very difficult and unenviable situation in deciding the fate of the interest in the next meeting after the increase in inflation last February before measuring the impact of the decision of the expected increase in gasoline and gas prices during the month of March, as well as entering Ramadan season, which is witnessing an increase in prices.
Sahar Al-Damaty expected the Central Bank to keep interest rates unchanged at the next monetary policy committee meeting until reading the effects of the new gasoline price hike and not causing a stifle on the various sectors by increasing the cost of the burden of financing resources on them.
The annual core inflation rate prepared by the Central Bank rose to 7.2% at the end of last February, compared to 6.3% in January, according to what the Central Bank announced last Thursday evening.
The annual inflation rate for the total of the Republic rose during last February for the third month in a row, to record 10%, compared to 8% in January, according to a statement by the Central Agency for Public Mobilization and Statistics last Thursday morning.
The annual inflation rate in cities rose to 8.8% in February, compared to 7.3% in January.
The annual basic or urban inflation rate is still at the target range set by the Central Bank for the annual inflation rate at the level of 7% (plus or minus 2%) on average during the fourth quarter of 2022, but it approached its highest point, while the inflation rate exceeded In the total republic this target.
The monthly inflation rate for the total of the republic recorded 2% in February, compared to 1% last January.
The monthly inflation rate in cities reached 1.6 percent, compared to 0.9 percent in January, and in the countryside, it reached 2.3 percent, compared to 1.2 percent in January.
Al-Damaty explained that the Central Bank will postpone the decision to raise interest rates during the next meeting, and it will be helped by the presence of a real rate of return on the pound that allows it to wait for another 45 days until the next meeting, corresponding to May 19.
The outbreak of the Russian-Ukrainian war in the last days of February, which continues until now, and the Western sanctions against Russia because of this war, contributed to the sharp rise in the prices of a number of global commodities, especially food, minerals, energy and others, sharply over the days of the war, which was reflected in the prices of some commodities. in Egypt and still reflects its impact on the markets.
Eldamaty added that raising the interest rate is inevitable, but it may be in the next meeting to enable it to absorb the inflationary pressures in Egypt resulting from the rise in prices globally, as well as the direction of the Federal Reserve (the US Central Bank) to raise interest, which it takes into account like other central banks in the region .
Sahar stressed that the interest increase in the next meeting will be reflected in the increasing suffering of the debt cost burden in the budget deficit, as well as the difficulty of the current conditions after price increases.
She pointed out that the Central Bank’s decision to govern import operations is a proactive decision that helps relieve pressures represented in import inflation due to imported goods at high prices.
Mohamed Abdel-Al, a member of the board of directors of a regional Arab bank, agreed with Sahar El-Damaty’s opinion on the central fixing of interest at the next meeting.
He added that the central bank’s interest hike in the next meeting will not succeed in controlling inflation, which is linked to its presence due to supply imbalances and lack of supplies globally. Therefore, raising interest rates will be futile.
Abdel-Aal said that the current inflation is imported inflation and is not the result of production growth and an increase in the purchase rate. Any increase in interest will lead to more price increases as it is one of the factors involved in determining the cost of the final product price.
Abdel-Aal demonstrated the correctness of his speech towards the European Central Bank during its meeting last week by fixing interest despite the increase in inflation, as he realized that the increase in prices is more related to the lack of supplies and not to the increase in the purchase rate.
He added: “The current inflation may be temporary due to inflamed global geopolitical tensions, and in these matters, monetary policy should be careful before the decision to increase interest and its repercussions on increasing the budget deficit, especially the cost of the debt burden, which accounts for 31.5% of the expenditures, representing 2.8% of GDP.
Mahmoud his son, Executive Director of the Money Markets and Fixed Income at Al-Ahly Financial Investment Company, disagreed with previous opinions and expected the Central Bank to start raising interest rates from the next meeting due to the global and accelerating conditions and the increase in global inflation and its impact on Egypt.
He expected the Central Bank to raise interest rates by 0.5% in the next meeting, with the continued increase in the inflation rate. .
His son described the central bank’s decision to take interest in the next meeting as very difficult for decision-makers, with inflationary pressures and fears of an inflationary stagnation.