Is “central Egypt” changing interest rates in the battle against inflation?

Markets await the Central Bank of Egypt’s Monetary Policy Committee meeting on Thursday to decide interest rates.

The Central Bank’s Monetary Policy Committee decided at its last meeting in June to keep overnight deposit and loan rates and the principal transaction rate at 8.25% and 9.25%. for the fifth time in a row.

It also decided to keep the credit and discount rate at 8.75%.

The last change in interest rates in Egypt was last November, when they were cut by 50 basis points, bringing the total of cuts over the past year to around 400 basis points.

In turn, Nouman Khaled, deputy director and macroeconomic analyst at Arqaam Capital, expected in an interview with Al Arabiya that interest rates would be set due to rising fuel prices locally and globally, and therefore, in addition to expectations of a rate cut in the last two meetings of this year.

Regarding inflation, Khaled said imported inflation is focused on fuel prices as it is affected by international prices, excluding imported inflation which has a bigger impact than hydrocarbons.

For its part, the research department of HC Securities and Investment expected the Central Bank of Egypt to keep interest rates unchanged at its meeting scheduled for Thursday, August 5.

And senior analyst of the macroeconomics and financial services sector at HC, Monet Doss, expected the inflation rate during the month of June to reach the level of 0.8% on a monthly basis and 5.6% on an annual basis, within target limits. range of the Central Bank of Egypt at 7% (+/- 2%) for the fourth quarter of 2022.

However, HC expects T-bill yields to remain resilient at current levels, as foreign flows into Egyptian T-bills remain critical to supporting Egypt’s net international reserves, given the slow recovery. tourism.

She pointed out that the net foreign assets of the Egyptian banking sector (excluding the Central Bank) fell to 1.69 billion dollars last May against 3.38 billion dollars in the previous April. Doss said: “This is a low level, as the banking sector uses its foreign assets to finance the exit of foreign capital from the Egyptian debt market in the event of external or internal economic shocks.”

On the other hand, Egyptian companies are currently borrowing at an average interest rate of 8.75%, while one-year Treasury bills fetch an after-tax rate of 10.6%. The current rate cut is expected to cause the risk-free interest rate to rise above the business loan rate.

HC suggested that the Monetary Policy Committee keep the interest rate unchanged at its next meeting. In addition, Egypt faces stiff competition from Turkish Treasuries, which currently offer a real yield of 5.5% (calculating zero percent taxes and Bloomberg’s Turkish inflation forecast of 13, 4% and a yield of 18.9% on one-year treasury bills) with a 5-year US dollar credit risk swap at 388 basis points.

Egypt offers a real rate of 3.8% (calculating 13.3% on Egyptian 12-month treasury bills and calculating 15% tax on treasury bills imposed on US and European investors and our forecast for inflation at 7.5% for next year) with a rate of 5 US dollar credit risk swap at 362 basis points.

It should be noted that the Monetary Policy Committee of the Central Bank of Egypt kept the interest rate unchanged at its last meeting for the fifth time in a row. Egypt’s annual inflation rose to 4.8% in May, with monthly inflation hitting an increase of 0.7%, from an increase of 0.9% in April, according to data recently released by the Central Agency. for public mobilization and statistics in Egypt.