The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold its third periodic meeting this year on Thursday to discuss the fate of the central interest rates, which are the main indicator of the direction of interest rates on the EGP in the short term.
On 21 March, the MPC decided in an extraordinary meeting to raise the basic interest rates with the Central Bank by 1% to reach 9.25% for deposit, 10.25% for lending, and 9.75% for the credit rate, discount rate, and price of the main operation of the CBE.
In its statement accompanying this decision, the committee indicated that during the recent period, global inflationary pressures began to re-emerge after signs of recovery of the global economy from the turmoil caused by the coronavirus pandemic due to the developments of the Russian-Ukrainian conflict, as risks related to the global economy increased.
It added that on top of these pressures comes the noticeable rise in global commodity prices, supply chain disruptions, and high freight costs, in addition to the fluctuations of financial markets in emerging countries, which led to domestic inflationary pressures and increased pressure on the external balance.
The committee stressed that achieving low and stable inflation rates in the medium term is a prerequisite for supporting the purchasing power of the Egyptian citizen and achieving high and sustainable growth rates.
The market was awaiting the latest indicators of inflation in the local market to determine the next move of the central bank.
Previously, the CBE revealed that the annual rate of core inflation rose in April for the eighth month in a row to record 11.9%, compared to 10.1% in March 2022, which is the highest rate since April 2018, pointing out that the monthly rate of core inflation was 2.4% in April 2022 compared to April 2021’s 0.7%.
The Central Agency for Public Mobilisation and Statistics (CAPMAS) also revealed that the annual inflation rate in cities rose to 13.1% on an annual basis in April, up from March’s 10.5%.
CAPMAS said that the general consumer price index for the entire Republic amounted to 129 points in April, recording an increase of 3.7% over the month of March.
Furthermore, the annual inflation rate recorded 14.9%, up from March’s 12.1% and April 2021’s 4.4%.
The CBE is targeting an inflation rate of 7% (± 2%) on average for the fourth quarter (4Q) of this FY.
Radwa Al-Swaify — Head of Research at Al-Ahly Pharos Securities Brokerage — expects the CBE to raise its interest rates again on Thursday by 200 basis points in order to contain inflation trends and take into account global monetary tightening trends.
She added that this expectation came as a result of April’s high inflation reading and the expected gradual increase in inflation over the next few months, expecting the number to reach a peak of 14-15% in August 2022, after which it will begin to decline and return to the target area by April 2023.
Moreover, the Research Department of Beltone Investment Bank also expects the CBE to raise its interest rates, however, by only 50-100 basis points.
Beltone attributed this to maintaining the attractiveness of investment in the fixed income market, especially with the rise in interest rates globally, as well as high inflation rates that put pressure on flows to emerging markets.
It also pointed out that monthly inflation rose by 3.3% compared to 2.2% in March, pointing out that this rise came as a result of the increase in food prices by 7.6%, mainly resulting from an increase in vegetable prices by 29.5%.
According to Beltone, the rise in inflation in April is a result of the devaluation of the EGP in addition to seasonal spending on food commodities during Ramadan and Easter.
It also expects that general inflation would continue to rise, as the rise in global commodity prices has begun to gradually affect the local market.
For its part, the Research Department of HC Securities and Investment expects the CBE to raise its interest rates by 200 basis points.
“April inflation figures came in above our estimates of 12.3%, driven by a 48.8% y-o-y increase in fruit and vegetable prices, while bread and cereal prices rose by 28.5% y-o-y,” said Monette Doss — Senior Analyst for HC’s Macroeconomic and Financial Services Sector.
“We believe that there are several factors that led to food price inflation, including a seasonal increase in demand during the month of Ramadan, the devaluation of the EGP by 18% since 21 March, and the increase in global prices in the wake of the Russian-Ukrainian war. Food may calm down relatively in the next month, given that demand has balanced after Ramadan. We expect food prices to be the main driver of our expected average inflation at 14% over the remainder of 2022.”
For its part, the Prime Investment Bank also expects the interest rates to be raised by more than 1% for the same reasons.