The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold its periodic meeting on Thursday to discuss the fate of the bas interest rates, which are the main indicator of the direction of interest rates on the EGP in the short term.
The committee had decided in its last meeting, which was held on 18 August, to maintain rates at 11.25% for deposit, 12.25% for lending, and 11.75% for the credit and discount rates and the main transaction, after raising those prices by 3% over March and May.
The committee stressed that this decision is in line with the goal of price stability in the medium term, expecting a relatively higher rate of inflation than the CBE’s target of 7% (±2%) on average during the fourth quarter of 2022, provided that inflation rates gradually decline.
The CBE has recently revealed that the core consumer price index recorded a monthly rate of 0.6% in August 2022, compared to -0.3% in August 2021, and 1.5% in July 2022. The annual rate of core inflation increased by 16.7% in August 2022, compared to 15.6% in July 2022.
On Wednesday, the US Federal Reserve raised its benchmark interest rate by 0.75% for the third time in a row and signalled its intention to continued tightening monetary policy going forward in a bid to control inflation.
The average price of the dollar against the Egyptian pound also increased, at the end of the transactions of banks operating in the Egyptian market, on Wednesday, by about EGP 0.5 to EGP 19.4419 for buying and EGP 19.5183 for selling, compared to EGP 19.3928 for buying and EGP 19.4683 for selling on Tuesday, according to the CBE.
The official price of the US currency at the CBE also increased to EGP 19.43 for buying and EGP 19.5384 for selling, compared to EGP 19.3806 for buying and EGP 19.4884 for selling.
This level of the dollar price against the pound is the highest ever. The dollar witnessed its highest price in banks operating in the Egyptian market in December 2016, when it reached EGP 19.1343 for buying and EGP 19.5186 for selling.
The US dollar exchange rate increased by EGP 0.5 at banks on Wednesday. It ranged between EGP 19.42 and EGP 19.49 for buying and EGP 19.50 and EGP 19.52 for selling.
At the National Bank of Egypt (NBE) and Banque Misr, the dollar exchange rate recorded EGP 19.44 for buying and EGP 19.50 for selling. At the CIB, it reached EGP 19.46 for buying and EGP 19.52 for selling.
At the Suez Canal Bank, the USD recorded EGP 19.42 for buying and EGP 19.52 for selling, and at the Arab African International Bank (AAIB) it recorded EGP 19.44 for buying, and EGP 19.52 for selling.
The price of the dollar increased by about EGP 0.11 against the Egyptian pound in last week’s trading, then stabilized last Sunday and Monday, before increasing again on Tuesday by EGP 0.2.
Tarek Metwally, former Vice President of BLOM Bank Egypt, said that it is highly likely that the MPC would increase the interest rates.
Radwa El-Swaify, head of the research sector at Pharos Holding, expects the CBE to maintain the interest rates during the MPC meeting on Thursday.
She expects this to happen given the CBE’s keenness on avoiding adding more pressure to the state’s general budget with the relative calm in global commodity prices and inflation. A decline is likely to take place in early April 2023, and therefore, fixing interest rates comes with the aim of supporting production and the state’s general budget.
El-Swaify noted that raising the interest rate is not unlikely, however, especially if quick steps were taken regarding the flexibility of exchange rates before the meeting.
For its part, Zilla Capital Investment expected the CBE to fix interest rates during the MPC meeting.
The company explained that the nature of the Egyptian economy makes the impact of raising interest rates in calming inflation very limited, as it will not attract foreign investors to buy EGP, and will not support the cash reserve.
The Research Department of HC Securities and Investment expected the CBE to raise the interest rate by 100 basis points at its meeting on Thursday.
“We believe the MPC may prefer to gradually raise the overnight deposit and lending rates by 100 basis points at tomorrow’s meeting, and then raise them again by another 100 basis points in the next meeting,” said Heba Mounir, the company’s macroeconomic analyst.