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Books – Mustafa Eid:
The Egyptian Central Bank cut Thursday for the second time this year the deposit and lending rates of 14% to 14.25% and 15.25% on loans.
The reduction of interests – like any economic decision – has advantages for some of the parties involved in the decision and disadvantages for others.
In this report, Masrawi monitors the major winners and losers of the central bank's decision to cut interest rates.
The winners
1- Manufacturers and service providers
Manufacturers and service providers are one of the most prominent groups waiting to reduce interest in the hottest people, which will help them in the coming period to implement the expansion or new projects they wish to implement, but the great interest was one of the most important obstacles that prevented it.
Rate reduction encourages investors to aggressively use borrowing again in order to implement new extensions and projects, as well as reduce financing costs, which is reflected in the end and is therefore reflected in their net profit.
The increase in the supply of products through these new projects contributes to the reduction of production costs and the supply of goods at affordable prices, due to the increased consumer demand for their products as well as than the increase in revenues and profits.
2- Personal Loan Holders
In addition, holders of personal loans from banks are one of the main beneficiaries of interest rate reductions, especially as this type of credit is a consumer credit that does not generate financial returns for the bank. customer. Therefore, the lower the cost, the better the customer.
Interest rate cuts can also encourage customers to use this type of credit to finance the purchase of goods or access to various services, thus revitalizing the consumer sector, which has suffered in recent years from lower purchasing power and higher prices resulting from economic reforms.
3. Government
The government is one of the main beneficiaries of the interest rate cuts, as it should have a positive impact on the government's objectives in reducing the budget deficit and reducing interest on debts, which allocated LE 569.1 billion in the general budget for the current financial year, which represents about 36.1% of budgetary expenditure.
The Ministry of Finance said in the budget statement of this year 's budget that the rise in domestic interest rates of about 1% compared to the budget project target would have an impact. negative on the budget deficit, due to an increase in public accounts debt of the order of 8 to billions of pounds per year. The opposite occurs when interest rates are lower than the budget target.
The government aims to continue to reduce the budget deficit during the current fiscal year, to 7.2%, against 8.4% in the previous fiscal year.
Gold and real estate resellers
The gold and real estate sectors should benefit from some of the money that could come from the banks when interest rates are reduced, looking for higher returns through another instrument. 'investment.
Gold prices have rallied sharply over the recent period. Prices in Egypt have reached unprecedented levels. Some expect the gold trend to continue in the light of the tensions of the US – China trade war and the emergence of certain indications for the future. a possible global recession. Thus, the increased use of shelters such as gold.
Some of the money that could come out of the banks after the interest rate cut could be another opportunity to revitalize the real estate sector, which has been struggling with rising prices, supply and declining prices. request.
5- Stock Exchange Investors
Interest rate cuts should encourage experienced and cautious capital market investors to attract the Egyptian stock market and inject new investment, especially those that have suffered from the market shift in recent years, light of the new indicators of stock market recovery during the year. Periods to come.
This also corresponds to expectations regarding the resumption of the government's IPO program in the coming months, after a single additional share of Eastern Tobacco's shares.
In recent weeks, the stock market has seen a remarkable recovery with an increase in volumes and exchange values. The IPO of Fawry shares also revealed the appetite of open investors to seize all the good opportunities when they come on the market, which could be supported by the government bid program.
Unemployed
Given the increase in borrowing rates expected over the coming period following the reduction in interest rates on loans, investors will tend to implement new investments, new projects or expansions of existing projects will help to create new jobs, reduce the unemployment rate and reduce the number of unemployed in the coming years . The unemployed.
According to the latest data from the Central Agency for Public Mobilization and Statistics, the unemployment rate decreased by 7.5% in the second quarter of 2019, compared to 8.1% in the previous quarter and 9.9% in the same period. quarter of the previous year, a level never reached in decades.
Job creation generally contributes to improving the standard of living, increasing spending and the demand for goods and services, thereby increasing growth and investment, as well as increasing the well-being of citizens. and to reduce poverty rates, which reached 32.5% in 2017-2018.
losers
1. applicants
Rate reductions are expected to have a negative impact on bank depositors, as banks are expected to reduce interest rates after the central bank cut, reducing their yield.
However, with the decline in inflation rates over the last few months, the return obtained by depositors after the discount could be better in terms of real interest than the return on their deposits with the rates of interest. inflation in the post-liberalization period, where the interest rate during this period was negative relative to the inflation rate. Which exceeded the level of 30%, while the highest return of the market was 20%.
The real interest rate (the difference between the interest rate and the inflation rate) is currently around 7%, according to a previous report by the Shuaa Investment Bank.
Investors in debt securities
Interest rates on debt securities issued by treasury bills and bonds are expected to decline as interest rates fall, leading to a decline in the direct interest investors will receive on these instruments.
Despite this expected decline, Egypt will likely remain one of the most attractive countries for these investments, particularly with rising real interest rates and the tendency of other markets to reduce interest rates such as Turkey, in addition to stable economic conditions in Egypt and positive economic indicators in the recent period.
Alia Mamdouh, chief economist at Beltone Investment Bank, told Masrawy earlier in his speech on the interest rate cut forecast: "We expect treasury bills to remain attractive even after rate cuts, backed by the strong Egyptian pound and higher real interest rates due to a slowdown in inflation ".
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