Egypt lowers its interest rates despite forecasts of a rise in energy prices

The Egyptian central bank has unexpectedly cut interest rates on the basis of low inflation and better macroeconomic indicators, according to an economist, which aimed to attract more investment. Is similar Or double throughout the year.

The deposit rate fell from 16.75% to 15.75%, while that of loans fell to 16.75% instead of 17.75%, according to a statement from the Egyptian Central Bank, the first reduction achieved since March 2018.

Declining inflation

The bank's monetary policy committee said the decision was made after the publication of statements confirming "control of inflationary pressures" and that in light of this statement, "the monetary policy committee decided to reduce the central bank's base rate of return by 100 basis points ".

"Many investors have complained about the high interest rate and its negative impact on domestic investment in particular," said Basset Fahmi, a member of the economic committee of the Egyptian parliament. "There is no doubt that interest rate cuts will lead to further improvements in economic indicators, especially internal ones.

"Fahmi said during a telephone conversation with the BBC that the decision to reduce the interest rate was the result of declining inflation indicators in Egypt over the recent period. Official figures, inflation has gradually declined since March to reach recently 12%.

"The rate of inflation will decline further in the medium term, and therefore the interest rate."

Fahmi said the reduction in interest rates would be a good fit with the movement of investments in Egypt, namely the Mediterranean and major investors.

The decision to cut interest rates is at odds with the predictions of most economists polled by Reuters and Bloomberg, notably with a reduction in fuel subsidies by mid-2019, which means inflation indicators will pick up again and the central bank should contain it again.

However, Ahmed Shamseddin, head of research at EFG-Hermes, expects the central bank to continue its policy of reducing interest rates.

Slightly high

"I'm expecting inflation to stabilize at a level of 12 to 14% at the latest and that there is room for further interest rate cuts." "Shamsuddin told the BBC.

"The reduction in interest rates will have a positive impact on the performance of the real economy in Egypt," he said. "The productive process of creating companies and expanding their business will benefit from lower interest rates."

He predicted that the advantage of different sectors of the Egyptian economy of the reduction of interest rates, including the increase in profits of food companies listed on the Egyptian stock market of 20 %.

Egypt has been hit by an unprecedented surge in inflation following the liberalization of the local currency exchange rate in 2016. Despite improved indicators, experts say that consumption patterns have been eroded. considerably affected.

"It is rare to see in the Egyptian market popular movements boycoting products to protest the high prices, and this phenomenon has intensified significantly over the last period, which dramatically affects the movement of investment."

The drop in interest rates comes in the wake of the rise of the Egyptian pound, which stood at $ 17,546 against the US dollar, its highest level since March 2017, according to Bloomberg data. . Analysts attributed this rise to the rebound in foreign investment in domestic debt after heavy sales of securities and bonds of the Egyptian treasury last year.