Banking experts and analysts are expecting interest rates to remain unchanged at the Central Bank of Egypt (CBE) for the sixth consecutive time, during the Monetary Policy Committee’s (MPC) meeting on Thursday.
The MPC will hold its fifth periodic meeting this year on Thursday to discuss the fate of the basic interest rates, which is the most important indicator of the direction of interest rates in the local market.
The committee had decided, during its meeting held on June 17, to maintain the basic interest rates at CBE, for the fifth time in a row, at 8.25% for deposit and 9.25% for lending, and 8.75% for the credit and discount rates, and the main operation. This is the level reached in November 2019.
Mohamed Abdel Aal, a banking expert, said that MPC is expected to continue to adopt a long-term stimulus policy, in line with the state’s policy of stimulating economic growth.
He explained that inflation expectations during the coming months will be one of the most important factors affecting interest rate trends. He pointed out that inflation trends in the coming months indicate its continued stability within the framework of the new target rate by CBE of 7% (±2%), with an expected gradual rise in the coming months, under the influence of the rise in global oil prices, and most of the prices of imported strategic commodities, to reach an expected average ranging from 5% to 6% by the end of the year.
He pointed out that despite the rise in core inflation last June to 3.8% compared to 3.4% in May, the real rate of return of the Egyptian pound continued to rise. This gives the MPC the green light for a reduction in the interest rate. On the other hand, the committee may give more attention to maintaining foreign exchange flows, which may push it to fix interest this time as well.
Tarek Metwally, a banking expert, expected interest rates to be fixed at the Thursday meeting.
He explained that despite the recent rise in inflation levels, it remains within the safe and targeted range of the CBE. “We also need to stabilize the foreign exchange market and maintain the attractiveness of the pound, which supports the fixing of interest,” he added.
He pointed out that despite the improvement in economic indicators, more caution is required to follow up on any possible negative effects of the Coronavirus mutation, and its repercussions on the global and local economy during the coming period until a full recovery is reached.
Radwa El-Swaify, Head of Research at Pharos Holding, expected the CBE to fix interest rates for the sixth time in a row during Thursday’s meeting.
She explained that this is due to the fact that inflation will rise relatively during the months of July and August due to the increase in the prices of electricity, cigarettes and transportation.
The Research Department of HC Securities and Investment expects CBE to keep the interest rate unchanged at its meeting on Thursday.
Monet Doss, the company’s senior macroeconomic and financial services analyst, said that lowering the interest will lead to a further rise in the risk-free rate above the corporate lending rate, so MPC is expected to keep the interest rate unchanged in its next meeting.
She added that Egypt is facing massive competition by Turkish treasury bills, which currently offer a real yield of 5.5%, while Egypt offers a real rate of 3.8%.
A report issued by HSBC expected CBE to keep interest rates unchanged at the MPC meeting on Thursday, to become the sixth decision in a row to be fixed.
The report also expected CBE to continue fixing interest until the end of 2021. Moreover, it mentioned that there is no need to raise interest rates in Egypt, as the trend of the inflation rate to decline in the month of June was surprising, and any action taken to suddenly reduce interest rates would lead to much greater risks.
“As CBE continues to tighten its policies during the economic decline due to COVID-19, CBE has shown a traditional reference reaction that is believed to continue, especially with the global economy in general being exposed to a lot. Furthermore, maintaining the continuity of financial inflows to meet the large requirements of foreign financing for Egypt contradicts the reduction of interest rates,” the report said.