Egyptian stocks were under pressure last week, with a possible new interest rate raise after the International Monetary Fund (IMF) said that interest rates and fiscal measures are among the tools that could help Egypt curb a rising inflation.
The market’s capitalisation dropped by EGP 8bn ($441m) over four sessions last week, with EGX 30—the market’s main gauge—losing 2.86%.
A new possible hike in interest rates could lure investors to pump their cash into banking assets and abandon other relatively high-risk assets like stocks.
Last week, a senior official at the IMF said in a press conference that interest rates are “the right instrument” to manage Egypt’s inflation.
“This is something that we are discussing with the authorities,” Jihad Azour, director of the fund’s Middle East and Central Asia department, explained.
Stock market analysts questioned by Daily News Egypt expect a possible hike to impact Egyptian stocks in the short and medium term.
The CBE’s monetary policy committee is scheduled to meet on 21 May to discuss interest rates, according to the bank’s official website.
“The market has already started to take a downtrend based on signs of the possible rate hike,” said Sameh Gharib, head of technical research at Roots Stock Brokerage House.
“When the IMF asks the authority to raise rates to curb inflation … no way it will not do it. They want to get the second tranche of the loan,” he added.
Egypt, which clinched a deal with the IMF in November for a $12bn three-year loan programme, is scheduled to receive the second tranche of the bailout in May or June, according to Finance Minister Amr El-Garhy, as quoted by Reuters.
“There was selling pressure last week after the news of a possible interest rate hike,” Mohammed Amin, a Cairo-based trader told Daily News Egypt.
“What investors are thinking about is that any possible new raise in interest rates could harm their investments, with the banking sector giving a better yield,” Amin added.
Since Egypt floated its currency last November, the CBE has raised interest rates by 3% to 14.75% for deposits and 15.75% for lending.
The following months saw annual inflation rates reach a historic level, hitting 32.5% in March.
“In the short-term, investors will track any signs of a possible rate hike, taking into consideration that the CBE may delay that step,” Amin added.
Capital Economics, a London-based consultancy, said in a research note on April 10 that the CBE is unlikely to take further steps to tighten its monetary policy.