How will interest rates move in Egypt?

The research department of HC Securities and Investment Company expects the Central Bank of Egypt to keep interest rates unchanged at its meeting scheduled for the end of this week.

The company’s senior macroeconomic and financial services analyst Monet Doss said the inflation figures for February were below our expectations of 4.9% on an annual basis and 0.5% on an annual basis. monthly, which we believe reflects the current decline in consumer demand.

During the remainder of 2021, inflation is expected to reach 0.8% on a monthly basis and 6.4% on an annual basis, taking into account potential shocks to domestic prices following the recent rise in world prices and a decline. potential recovery in consumer confidence after the successful launch. of the new vaccine against the Corona virus.

HC has ruled out any increase in fuel prices since the current market price reflects the Brent price at $ 61 per barrel (as estimated in the government’s budget for fiscal year 2020/2021.

The company estimates the average Brent price for fiscal year 2020/2021 at $ 54 per barrel, averaging $ 44 per barrel in the first half of the year, while Bloomberg estimates the second half of the year at $ 62 per barrel. . Therefore, the inflation rate in 2021 is expected to remain within the Central Bank of Egypt’s target range of 7% (+/- 2%) for the fourth quarter of 2022.

Regarding the external situation, HC believes that Egypt currently relies on foreign capital inflows as the main source of foreign exchange due to declining tourism receipts and declining export activities. So, with the rise in Treasury bill yields in the United States of America as well as in various emerging markets like Turkey, we believe that the central bank has limited room for maneuver for further rate cuts as it moves forward. next meeting.

She explained that the rise in global interest rates was reflected in the decline in average monthly inflows of foreign investment in Egyptian debt securities to $ 1.25 billion in January and February, from $ 2.29 billion. in the second half of 2020.

As a result, the MPC is expected to keep interest rates unchanged at its next meeting. But at the same time, Egyptian 12-month T-bills offer a real yield of 5.1% (calculating the yield on one-year T-bills at 13.3% and calculating 15% tax on the Treasury bills imposed on US and European investors, and our inflation rate expectations of 6.0% for the year 2021) .Higher than Turkey’s real yield of 2% (by calculating the yield on Treasury for 14 months at 15.7% and with zero% tax, and Bloomberg’s forecast for inflation at 13.7% for 2021).

The central bank’s monetary policy committee decided, at its last meeting on February 4, to keep interest rates unchanged for the second time in a row after the decision to cut 50 basis points twice at the meetings September and November 2020.

Egypt’s annual inflation rate accelerated to 4.5% in February from 4.3% the month before, with monthly inflation increasing by 0.2% on a monthly basis, unlike the decline we have seen. observed in January by 0.4% on a monthly basis, according to data from the Central Agency for Public Mobilization and Statistics in Egypt.