Inflation, interest rates, and interest rates are undoubtedly the top topics on the agenda for billions around the world as record inflation waves sweep across the scientific economy amid stormy geopolitical tensions.
The Central Bank of Egypt will hold a meeting of the Monetary Policy Committee to settle interest rates on deposits and lending on September 22, next Thursday, according to the meeting schedule of the Monetary Policy Committee for 2022.
The CBE had violated the expectations of experts and analysts at the last August meeting, which indicated that the CBE would raise key interest rates by 1%.
Interest surprises
Market experts and investment banks predicted the increase at that time to the recent rise in the prices of petroleum products and the decline in the exchange rate of the pound against the dollar. However, the Egyptian Central Bank violated expectations and decided to fix the interest.
At its last meeting on August 18, the committee fixed the central bank interest rates for the second time in a row at 11.25% for deposits and 12.25% for lending.
The Central Bank decided to fix the interest rate twice in a row in June and August, after raising it by a total of 3% for the first time from 5 years, including 1% on March 21 in an exceptional meeting of the Monetary Policy Committee, and 2% last May.
previous decision
In the last meeting, the Monetary Policy Committee of the Central Bank decided at its previous meeting to fix the overnight deposit and lending rates and the central bank’s main operation rate at 11.25 percent, 12.25 percent and 11.75%, respectively.
In the last meeting, the CBE decided to keep the credit and discount rate at the level of 11.75%, while the Monetary Policy Committee meets on Thursday every six weeks.
The Monetary Policy Committee of the Central Bank has held two meetings since the beginning of this year, on February 3 and March 24, and it was also held on May 19, June 23 and August 18, with the remaining 22 September, 3 November and 22 December.
inflation pressures
The annual inflation rate in Egypt for the total of the Republic for the month of August rose to 15.3%, compared to 14.6% in July, according to a statement from the Central Agency for Public Mobilization and Statistics. for device data.
The Central Bank announced the rise in the annual core inflation rate prepared by it during the month of August to 16.7 percent, compared to 15.6 percent in July of the same year, setting a record in the last 4 years.
The monthly core inflation rate was also 0.6% last August 2022, compared to 1.5% last July, and the annual rate of inflation exceeds the level of cities and the Central Bank has its inflation targets of up to 7%, with an increase or decrease of 2% at the end of the fourth quarter 2022.
installation team
The Central Bank and others believe that the current rise in the inflation rate is temporary and will not continue in the coming period at the same levels, as it will start to trend to a downward curve at the beginning of 2023, after the price of a barrel of oil fell below $100, in addition to the decline of some food commodities globally.
Supporters of the Central Bank are likely to fix the interest rate for the third time in a row, despite the high rate of inflation and the increase in the dollar price, according to which the Customs Authority assesses the value of imported goods and thus determines the fees on them, affected by its rise in the Central Bank and banks.
This team believes that there is no point in raising interest rates to curb inflation at the present time, as the existing inflation is imported and has immunity against raising interest rates, which was confirmed by the Egyptian Prime Minister earlier.
external data
The Research Department of Zilla Capital expected the Central Bank of Egypt’s direction to fix the interest rate at the next Monetary Policy Committee meeting, scheduled to be held next Thursday.
She explained that the expectations of fixing the interest rate come as a result of the stability of high rates of inflation, especially that most of the impact of the shock caused by external data has already been reflected on the domestic inflation rate.
She added that Egypt, with the nature of its economy, the shape of its trade balance and budget deficit, and the rate of borrowing to GDP at the level of individuals and institutions, not the government, makes the effect of raising interest rates in calming inflation very small.
Zilla Capital said that the external variables regarding the food price index, as well as the food price index, may indicate that the worst in terms of import inflation has passed, which may be a positive indicator of the inflation pattern during the coming period.
She indicated that her expectations of fixing the interest rate come as a result of the limited impact on the stock portfolio, given that the foreign investor is still conservative with regard to entering emerging markets in general.
The company said that the exchange rate in Egypt occupies the bulk of the investment decision, as it does not wait for a movement of interest upwards as much as it waits for clarity regarding the exchange rate.
She added that raising the interest rate will not attract foreign investors to buy the Egyptian pound and will not support the cash reserve, because the yield on dollar bonds (Eurobonds) with different maturities is currently at 15%, which will represent an obstacle to investing in treasury bonds in the Egyptian pound with a return close to 12%.
22 . dollar
Zilla Capital said that the path of the dollar exchange rate against the pound has witnessed gradual increases in recent days, which favors the path of fixing interest, which is the adoption of the gradual reduction policy against the reduction policy according to the forces of suddenness.
The research company pointed out that all scenarios are still available in light of the quest to reach a more flexible exchange market in which the pound price is traded at its fair value.
Zilla Capital said that given the price of the dollar in relation to the dollar index, which is the index that measures the US currency against a basket of 6 other currencies, and each currency has its weight within this basket according to its share of daily transactions, the dollar has risen by 21% since the beginning of this general.
This indicates that the Egyptian pound did not depreciate against the dollar in sufficient value, which is likely to reduce the price of the pound against the dollar, which was set by the parallel market despite its inefficiency, and the market was at 21 to 22 pounds to the dollar.
In a recent report by Link Standard Chartered (NASDAQ) the Bank expected that an agreement between Egypt and the International Monetary Fund would be reached on obtaining a loan of $6 billion. Earlier, the Egyptian government denied that the Fund’s loan would reach $15 billion, while government sources confirmed that the loan It will range from 3 to 5 billion dollars.
On the other hand, the bank expected that the gradual reduction of the local currency would continue down to levels near 21 pounds to the dollar before the end of this year in the framework of compatibility with the requirements of the fund, and the bank said in a previous report that Egypt continued to make progress in the field of reform and financial discipline, as the government announced Achieving a primary surplus, and the report described the financial reform in Egypt as proceeding according to plan.
Lift Team
On the other hand, another group expected the Central Bank to raise interest rates by between 100 to 200 basis points in the next monetary policy meeting due to the increase in the general and core inflation rate, and the rise in the dollar price on which goods are resided in customs.
This team believes that raising the central bank will be necessary to create a real return on customers’ savings in banks after the increase in inflation represented by the rise in prices.
The price of the dollar, which the Customs Authority deals with, rose in the last update to the level of 19.47 pounds, and the average price of the dollar against the pound rose by 23.4%, compared to its current level with what it was on March 20, at 15.76 pounds.
negative return
Bankers say that the real return on customers’ savings currently in banks is negative, as it is less than the inflation rate, which makes the value of money low. current.
According to market experts, it is necessary for the central bank to raise interest rates to keep customers attracted rather than going to people who represent the phenomenon of “relaxing” and thus fall victim to fraud under the illusion of obtaining a high return.
200 points increase
Economist Hani Genena expected a rate hike at the monetary policy meeting next Thursday, noting that the rate hike is likely to reach 2%.
He added that the reason for the rise lies in the increase in the pace of core inflation in the recent period, expecting an increase in its acceleration to reach about 20% by the end of the year, and it is also expected that the US Federal Reserve will raise interest rates strongly.
According to Genenia, this will deepen the pressure on the local currency and increase the difference between the dollar and the Egyptian pound, and therefore it will be necessary to bridge this difference between the two currencies; To attract hot money, which came out of the banking sector in the recent period, again.
He said that the most important reason for raising the interest rate would be in order to comply with the requirements of the International Monetary Fund in order for Egypt to obtain the loan it seeks to obtain; So there will be a new devaluation of the exchange rates, and consequently an increase in the interest rate.
Pharos expects installation
Radwa Al-Swaify said; Head of research for Al-Ahly Pharos, said that given the current unusual circumstances that the country is going through and the pressure on the budget deficit, it is expected that the Central Bank of Egypt will decide to deviate from the usual path, and not go to the option of raising the interest rate.
Pharos Research said inflation will go through certain spikes whether interest rates are raised or not; Due to the high prices of production inputs, and the shortage of some commodities, there is a possibility to think outside the box, and not to raise the interest rate as a kind of support for the wheel of production and the general budget of the state.
She added that raising the interest rate will not entail any gains except for the possibility of attracting hot money, but Egypt decided not to go on this path or focus on bringing these funds.
Pharos said that the traditional path refers to raising the interest rate by 200 basis points, especially if quick steps are taken regarding the flexibility of the exchange rate before the meeting of the Monetary Policy Committee of the Central Bank of Egypt next Thursday.
Hermes (EGXHRHO) 100 bonus points
On the other hand, Muhammad Abu Pasha expected; Chief Economic Analyst, Vice President of Research at EFG Hermes, raised the interest rate, during the upcoming Monetary Policy Committee meeting, by 100 basis points.
The chief economic analyst, deputy head of research at EFG Hermes, added that this step comes in light of the continued inflationary pressures and the depreciation of the pound against the dollar.
He pointed out that raising the interest rate was due, in the first place, to curbing the dollarization phenomenon that re-emerged, after the drop in the exchange rate of the pound against the dollar.
He stressed that this is consistent with the Central Bank’s tendency to gradually reduce the exchange rate of the pound, so that it approaches the real and fair price, which will be determined by developments in reaching an agreement with the International Monetary Fund and responding to its requirements, regarding the flexibility of the exchange rate.
He revealed that there is an expected effect of the US Federal Reserve raising interest rates on the dollar at its meeting next Wednesday, by 50 to 75 basis points, pointing to the tendency of most central banks around the world to raise interest rates to protect their currency.
Prime 100 bonus points
Amr Al-Alfi predicted; Head of Research at Prime Securities Brokerage, raised interest rates by 1% as a result of accelerating inflation, noting the central bank’s focus on expectations, in addition to the rise in the dollar price is one of the inflationary pressures.
The head of the research department at Prime Securities Brokerage added that raising interest rates will have to keep pace globally, noting that the US Federal Reserve is expected to raise interest rates during its meeting next Wednesday.
He stressed that the impact of raising interest rates will not be significant on the market, since the hike is expected, and therefore the market is ready for this step.
He expected that raising the interest rate until the end of the year will be at a rate of 2%, noting that at the beginning of next year he will start studying reducing interest rates again.
Fed meeting
The Federal Reserve – the US Central Bank – will meet next Tuesday and Wednesday, September 20 and 21, to discuss the fate of interest rates, in light of expectations to raise it 0.75% to 1%, which comes one day before the Central Bank of Egypt meets for the same purpose.
The Federal Reserve raised interest rates for the first time in about 4 years last March by 0.25%, and by 0.5% at the May meeting, then by 0.75% in June, and then by 0.75% last July to reach the range of 2.25-2.50%.
This is the highest rate of raising the US interest rate since 1981 to curb inflation, which hit a record high in nearly 40 years, earlier this year.