The Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) will hold on Thursday its fourth regular meeting of the current year to agree on the CBE’s principal interest rates, which is the main indicator of interest rates on the Egyptian pound in the local market.
The MPC is uncertain on how to resolve the interest rates, considering the 2% increase in inflation in May, the record levels of domestic public debt, and the continued slowdown in economic growth.
Last week, the CBE revealed the annual inflation rate, registering a monthly rate of 3.15% in May, compared to 1.24% in April.
According to the CBE, record consumer prices published by the Central Agency for Public Mobilization and Statistics (CAPMAS) showed a monthly increase of 3.05% in May, compared to 1.27% in April.
The annual rate of inflation increased to 12.31% in May, compared to 10.27% in April.
According to Osama El-Menilawy, the assistant general manager of the financial division at a private bank operating in Egypt, it is difficult to predict what kind of resolution the MPC will make on the Egyptian pound interest rates at the meeting.
El-Menilawy explained that the CBE is in a difficult position, as it has to contain inflation and maintain the stability of commodity prices, requiring it to raise the interest rate on the Egyptian pound. At the same time, the CBE has to support the government trend in promoting investment and reduce the burden of domestic debt service, forcing it to decrease or fix interest rates.
According to the research department at Beltone Financial Holdings (BFH), there are expectations that the CBE will maintain the rates of the basic yield at the MPC meeting.
BFH’s expectations are compatible with Pharos Holding, which expect that the CBE will set deposit and loan interest rates.
On the other hand, EFG-Hermes, Prime Holding and International Finance Corporation (IFC) expect the CBE to raise interest rates, though they did not specify the percentage of the expected increase.
CI Capital and Mubasher Financial Services (MFS), meanwhile, confirmed that there are equal chances of rate fixing or increases by between a quarter and a half percentage points.
At a meeting held on 28 April, the MBC decided to fix the CBE’s basic yield prices at 10.75% for deposit rates, 11.75% for loan rates, and 11.25% for the price of main operations and credit and debit. The decision was made after those prices were increased by 1.5% on 17 March.