By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
DailynewsegyptDailynewsegypt
  • Home
  • Business
    BusinessShow More
    Public Enterprise Minister discusses cooperation with Aluminium Bahrain
    Public Enterprise Minister discusses cooperation with Aluminium Bahrain
    May 28, 2023
    First Abu Dhabi Bank Egypt launches ‘Access’ portal for electronic payments
    First Abu Dhabi Bank Egypt launches ‘Access’ portal for electronic payments
    May 28, 2023
    Sorouh partners with RICON Construction to establish new projects with EGP 30bn investments
    Sorouh partners with RICON Construction to establish new projects with EGP 30bn investments
    May 28, 2023
    Egyptian property sales increase 7% in April: Aqarmap
    Egyptian property sales increase 7% in April: Aqarmap
    May 28, 2023
    Africa needs 10 million housing units annually to meet increasing demand:AFCCA
    Africa needs 10 million housing units annually to meet increasing demand:AFCCA
    May 28, 2023
  • Politics
    PoliticsShow More
    Irrigation Minister reviews preparations for upcoming Cairo Water Week
    Irrigation Minister reviews preparations for upcoming Cairo Water Week
    May 28, 2023
    Al-Sisi affirms Egypt's keenness on security, stability of Iraq
    Al-Sisi affirms Egypt’s keenness on security, stability of Iraq
    May 28, 2023
    Biden, Republican House Speaker reach ‘preliminary agreement’ on debt ceiling
    Biden, Republican House Speaker reach ‘preliminary agreement’ on debt ceiling
    May 28, 2023
    Erdoğan wins third presidential term in Turkey after tough run-off
    Erdoğan wins third presidential term in Turkey after tough run-off
    May 28, 2023
    Map of alliances affects second round of Turkish presidential election
    Map of alliances affects second round of Turkish presidential election
    May 28, 2023
  • Interviews
    InterviewsShow More
    I changed my artistic path to create ‘state of wonder’: Tarek Lotfi
    I changed my artistic path to create ‘state of wonder’: Tarek Lotfi
    May 25, 2023
    I adore Ramadan drama, ‘Telt Al-Talata’ series achieved great success: Ghada Abdel Razek
    I adore Ramadan drama, ‘Telt Al-Talata’ series achieved great success: Ghada Abdel Razek
    May 8, 2023
    We aim to establish Egypt as nearshore centre for Software AG for MET region: Rami Kichli
    We aim to establish Egypt as nearshore centre for Software AG for MET region: Rami Kichli
    April 29, 2023
    Egypt-Spain relations witness remarkable development in recent years: Spanish ambassador in Cairo
    Egypt-Spain relations witness remarkable development in recent years: Spanish ambassador in Cairo
    April 18, 2023
    "Al-Asly" series saw my first leading role in TV drama: Reham Abdel Ghafour
    “Al-Asly” series saw my first leading role in TV drama: Reham Abdel Ghafour
    April 16, 2023
  • Culture
  • Opinion
  • Sports
  • Lifestyle
Reading: Current interest rates depend on expected inflation rates, not prevailing ones: CBE
Share
Notification
Latest News
Public Enterprise Minister discusses cooperation with Aluminium Bahrain
Public Enterprise Minister discusses cooperation with Aluminium Bahrain
Business
Irrigation Minister reviews preparations for upcoming Cairo Water Week
Irrigation Minister reviews preparations for upcoming Cairo Water Week
Politics Egypt
Al-Sisi affirms Egypt's keenness on security, stability of Iraq
Al-Sisi affirms Egypt’s keenness on security, stability of Iraq
Politics Egypt Region
Biden, Republican House Speaker reach ‘preliminary agreement’ on debt ceiling
Biden, Republican House Speaker reach ‘preliminary agreement’ on debt ceiling
Politics World
Erdoğan wins third presidential term in Turkey after tough run-off
Erdoğan wins third presidential term in Turkey after tough run-off
World Politics
Aa
Aa
DailynewsegyptDailynewsegypt
  • Home
  • Business
  • Politics
  • Interviews
  • Culture
  • Opinion
  • Sports
  • Lifestyle
  • Home
  • Business
  • Politics
  • Interviews
  • Culture
  • Opinion
  • Sports
  • Lifestyle
Have an existing account? Sign In
Follow US
  • Advertise
© 2023 DNE News. All Rights Reserved.
Dailynewsegypt > Blog > Business > Banking > Current interest rates depend on expected inflation rates, not prevailing ones: CBE
Banking

Current interest rates depend on expected inflation rates, not prevailing ones: CBE

Hossam Mounir
Last updated: 2022/06/26 at 1:35 AM
By Hossam Mounir 11 Min Read
Share
Current interest rates depend on expected inflation rates, not prevailing ones: CBE
SHARE

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided, in its meeting Thursday, to maintain its basic interest rates at 11.25% for deposit, 12.25% for lending, and 11.75% for the credit and discount rate and the price of the main operation of CBE.

In its resolution accompanying this decision, the Committee said: “At the global level, global economic activity has seen a slowdown as a result of the continuing Russian-Ukrainian crisis.” The trade sanctions imposed on Russia and the resulting bottlenecks in the supply and supply chains have led to an increase in world prices of basic commodities, as well as prices, as central banks abroad continued to tighten monetary policies by raising interest rates and reducing asset purchase programs, to contain high inflation rates in their countries. Moreover, the recently imposed closure in China has raised concerns about the potential to exacerbate disruptions to global supply chains.

“Initial data indicate that domestic economic activity continued to recover during the first quarter of 2022, albeit at a slower pace, as real GDP recorded a growth rate of 5.4% compared to 8.3% during the fourth quarter of 2021. This slowdown is due to several factors, most notably the repercussions of the Russian-Ukrainian crisis, in addition to the fading of the positive impact of the base period, which lasted during the past nine months,” said the MPC.

The committee expects economic activity to witness lower growth rates than previously expected, partly due to the negative repercussions of the Russian-Ukrainian crisis.

With regard to the labour market, the committee indicated a decrease in the unemployment rate in the first quarter of 2022, recording 7.2%, attributing this decrease to the increase in employment rates, which in turn limited the increase in the labor force.

The committee pointed out that the annual rate of general urban inflation continued to rise, but at a slower pace, to record 13.5% in May 2022 from 13.1% in the previous month. It pointed out that the annual rate of core inflation, which does not include fresh vegetables and fruits, goods and services whose prices are set administratively have seen an increase at a slower pace for the second month in a row, and continued the upward trend to record 13.3% in May 2022 from 11.9% in the previous month.

The committee attributed the rise in the annual general inflation rate to the rise in the prices of non-food commodities, as the annual inflation of food commodities slowed for the first time since the beginning of the year, supported by the fading of the supply shock experienced in the previous months in some fresh vegetables.

It added that inflation developments in May 2022 continued to be affected by developments in the Egyptian pound exchange rate, as well as the repercussions of the Russian-Ukrainian crisis on commodity prices.

The MPC considers that the global developments resulting from the Russian and Ukrainian crises are primary supply shocks outside the scope of monetary policy action, although those shocks may lead to exceeding the previously announced inflation targets.

She emphasized that monetary policy tools are used to control inflation expectations, reduce inflationary pressures from the demand side and the secondary effects of supply shocks, which may lead to relatively higher inflation rates than the targeted inflation rates.

“Given the current initial supply shocks, inflation rates may deviate relatively from the central bank’s target inflation rate of 7% (±2%) on average during the fourth quarter of 2022, provided that it will gradually decline after that,” it said.

The committee confirmed that it will continue to assess the impact of its decisions on inflation expectations and macroeconomic developments in the medium term, taking into account the decisions during the previous two meetings to raise basic interest rates. It noted that achieving low and stable inflation rates in the medium term is a prerequisite to support the purchasing power of the Egyptian citizen and achieve high and sustainable growth rates.

The Committee also emphasizes that the current interest rates depend mainly on the expected inflation rates and not the prevailing rates, and that the Committee will closely follow all economic developments and will not hesitate to adjust its policy to achieve the goal of price stability in the medium term.

It is noteworthy that the MPC’s decision to fix the interest rate was widely expected, after the two consecutive rate increases in March of 1% and May of 2%.

Experts and bankers emphasized that the CBE was not obliged to change the interest rate this time because it took proactive steps to confront inflation, and succeeded in them and achieved positive results.

Tamer Youssef, head of the treasury sector at one of the foreign banks operating in the Egyptian market, said that the decision of MPC to fix the interest rate reaffirms the stability of economic conditions and the Egyptian pound’s preservation of its competitive position against foreign currencies, especially that the interest difference between it and foreign currencies is still in its favour.

He explained that the decision to fix the interest was expected. “What we are witnessing in terms of the rise in prices is a direct result of external reasons, so the successive increase in the interest rate will not have the effect of containing inflation rates, and that reducing the money supply in the market by raising interest rates could have negative effects on growth rates in light of the slowdown in the global economy.

Sahar El-Damaty, a banking expert, also confirmed that the CBE was not obliged to increase the interest rate again because it took proactive steps earlier. She noted that central banks in the Gulf tended to increase the interest rate after the change in the United States, due to the Gulf currencies being connected to the dollar, while the Egyptian pound is connected to several currencies.

She explained that the US Federal Reserve raised the interest rate by 1.5% over the past period, while the CBE took strong proactive steps by raising the interest rate by 3%.

She added that the difference between the interest on the Egyptian pound and the US dollar is very large, and therefore encourages investment in the Egyptian pound, which gives a kind of reassurance in the coming period.

She pointed out that Egyptian banks offered high returns on savings certificates, pointing out that the increase in interest leads to an economic slowdown, an increase in costs to industry, and an increase in food prices, and that raising the interest by 1% increases the budget deficit by about EGP 30bn.

She explained that the majority of the hot money represented in foreign investments in treasury bills have already exited, and therefore there is no need to raise interest, explaining that despite the 13.5% urban inflation rate, there are certificates with a return of 14% and 15% in the market, which excludes an increase in interest. El-Damaty stressed that these certificates are considered a safe way to attract savings of individuals and protect them from inflation.

She stressed that the return of dollarization is completely excluded with the high interest rate on the Egyptian pound and saving certificates in the local currency. She noted that MPC takes into account internal and external conditions and variables before issuing its decision on interest rates.

 The decision to fix the interest rate on the CBE’s part also came in line with the expectations of HC Securities and Investment, which expected CBE to keep the interest rate unchanged at its meeting on Thursday.

“We believe that further rate increases will not prove effective in fighting inflation and could backfire by dampening production, leading to further supply shortfalls,” said Monette Doss, HC Securities’ senior macroeconomic and financial services analyst.

She added: “Inflation came in below our expectations at 14% on an annual basis and we expect average inflation at 14.4% over the remainder of the year, which is higher than the target by the CBE at 7% +/-2% for the fourth quarter of 2022. It is affected, to a large extent, by the foreign situation reflecting some shortages in products due to the lack of local manufacturing and low imports”.

She added that the Purchasing Managers’ Index in Egypt was at 47.0 in May, as data indicates a decline in consumer spending, a decline in the volumes of new supply orders at the fastest pace since 2020, and a decline in demand for production inputs as well as the rate of employment and employment.

Beltone Financial also expected interest rates to be fixed during the meeting.

The company’s research department said, in a research note, that it believes that the full impact of raising interest rates on inflation will take time to fully reflect, expecting CBE to keep interest rates unchanged during Thursday’s meeting, to control inflation rates, with the state of instability the world is currently witnessing.

 

You Might Also Like

CBE cooperates with international institutions to digitize supply chains: Assistant sub-governor

Egypt has integrated, full-disclosure programme to attract private sector investment: CBE governor

CIB’s Hisham Ezz Al-Arab receives Lifetime Achievement Award at African Banker Awards 2023

HDB offers a triple savings certificate with 20% annual return, 18.5% monthly return

CBE encourages banks to finance sustainable, environmentally friendly projects

TAGGED: CBE
Share this Article
Facebook Twitter Email Print
Previous Article Egypt spends EGP 465m in green stimulus, as part of obsolete vehicle replacement initiative: Finance Minister Egypt spends EGP 465m in green stimulus, as part of obsolete vehicle replacement initiative: Finance Minister
Next Article COP27 expected to address obstacles to green economy transition: FRA COP27 expected to address obstacles to green economy transition: FRA
Ad image
Ad image

Stay Connected

Facebook Like
Twitter Follow
Instagram Follow
Youtube Subscribe

Latest News

Public Enterprise Minister discusses cooperation with Aluminium Bahrain
Public Enterprise Minister discusses cooperation with Aluminium Bahrain
Business
Irrigation Minister reviews preparations for upcoming Cairo Water Week
Irrigation Minister reviews preparations for upcoming Cairo Water Week
Politics Egypt
Al-Sisi affirms Egypt's keenness on security, stability of Iraq
Al-Sisi affirms Egypt’s keenness on security, stability of Iraq
Politics Egypt Region
Biden, Republican House Speaker reach ‘preliminary agreement’ on debt ceiling
Biden, Republican House Speaker reach ‘preliminary agreement’ on debt ceiling
Politics World
//
Egypt’s only independent daily newspaper in English. Discuss the country’s latest with the paper’s reporters, editors, and other readers.

Quick Link

  • Home
  • Business
  • Politics
  • Interviews
  • Culture
  • Opinion
  • Sports
  • Lifestyle

Sign Up for Our Newsletter

Subscribe to our newsletter to get our newest articles instantly!

© 2023 DNE News. All Rights Reserved.

Join Us!

Subscribe to our newsletter and never miss our latest news, podcasts etc..

Zero spam, Unsubscribe at any time.

Removed from reading list

Undo
Welcome Back!

Sign in to your account

Lost your password?