After the Central Bank of Egypt raised, on Thursday, the basic interest rates by 2 percent (200 basis points) in the second meeting of the Monetary Policy Committee since the beginning of 2023, after inflation rates reached the highest level in the country’s history, a state of turmoil prevails in the markets in anticipation of a new wave of inflation. The depreciation of the pound or the “float” and the rise in the prices of all goods and services.
The markets are anticipating the decisions that will take place with the first working day of the Egyptian banks, Sunday, which was expressed by a gold trader, Haj Ahmed, (40 years old), who said in his interview with “Arabi 21”: “We do not know whether to reduce selling and increase buying in anticipation of a rise.” Gold price or not? Everyone is waiting for what will happen on Sunday, the first working day after the decision to raise interest rates.
Bassiouni, 60, also asked, one of the depositors in the National Bank of Egypt for a certificate with an interest rate of 18 percent, saying: “Do we rejoice in raising the interest rate, or do we grieve?” In his interview with Arabi 21, he pointed out that his savings have been in the bank for 5 years, and he changed the deposit several times with higher certificates up to (18 percent), but the result is “a loss in the purchase value of the amount,” he said.
Also, Hussein, one of the currency dealers on the black market, confirmed that “since the beginning of the month of Ramadan, there has been a state of anticipation in the exchange market, amid what is being raised about a new flotation,” noting that “since Thursday, with the decision to raise the interest rate, he has reservations about what he has.” currencies in dollars and euros, in anticipation of a new decline in the price of the pound,” noting that “this situation also controls those who wish to sell foreign currencies.”
This state of anticipation, and the ambiguity that strikes the markets, calls into question the economic value of the Central Bank’s decision to raise the interest rate in light of the uncertainty surrounding the country’s economy, and raises speculation about the consequences of the decision, and the extent of its success in addressing the loss of the value of the pound, and compensating savings owners for their loss in the local currency.
But the most important question is, is the rate hike this time an indication of a new flotation of the local currency, or not?
“The situation is critical”
Egyptian economist and academic Dr. Mostafa Shaheen, in response to Arabi 21’s questions, said, “Reducing inflation is the goal of the new decision, and the idea of the decision is for Egyptians and depositors to put more money to reduce purchases and thus reduce inflation.”
An economics teacher at the American College of Oakland, he added: “But the truth is that inflation in Egypt is not caused by the fact that Egyptians have liquid funds. Rather, its main reason is the lack of production in the country, and we import goods and each product offers goods at a different price.”
He explained, “This puts the Egyptian economy in this critical situation, and therefore the decision to increase interest will not succeed.”
The Egyptian academic stressed that “the decision to raise the interest rate will not succeed in addressing the loss of the value of the pound, which will continue to decline and collapse,” noting that “the owners of local currencies are losers in one word, because inflation in Egypt is higher than the normal rate.”
Shaheen believes, “We are literally on the verge of a new flotation, but the central bank is still insisting on its old policy of trying to stabilize the exchange rate, as it is unable to confront the black or parallel market in which the exchange rate reached 35 pounds, and this means that the central bank will one day be forced to float the pound.” .
Regarding the timing of the flotation waves stopping, he said, “This is known, because the flotation will stop when the central bank has the dollar proceeds to meet the demand, and this also does not exist, and therefore the flotation will continue for the coming period, unfortunately, and as a result, market turmoil will occur.”
He explained that “the Central Bank is postponing the floating step at least to ensure that prices do not rise, but the reality of the situation is that prices are rising, unfortunately.”
He concluded his speech by saying, “The flotation is inevitably coming, and the decision to raise the interest rate will not positively affect the economy, but it will increase production costs.”
“historic inflation”
The Egyptians are experiencing a stifling economic crisis, as the latest reports of the Central Bank of Egypt showed that the core inflation rate jumped to 40.26 percent last February, on an annual basis, from 31.24 percent last January.
The escalation in inflation follows a series of currency devaluations that began in March 2022 amid a long-running foreign currency scarcity and persistent delays in bringing imports into the country.
Egypt has reduced the exchange rate of the pound 3 times since March 2022, from an average of 15.7 against one dollar, to now settle at 30.6 pounds.
“related to theses”
Researcher and writer on economic affairs, Muhammad Nasr Al-Hwaiti, told Arabi 21: “There is no such thing as a new flotation because we are already inside the flotation itself, and the Egyptian pound against the dollar is in a state of permanent flotation, but if we talk about moving the exchange rate or the flexibility of the exchange rate, it is possible.” over the coming days.”
It is believed that “the occurrence of flexibility in the exchange rate, or the movement of the exchange rate, is linked to Egypt’s ability to sell shares of companies offered for sale to strategic investors.”
He added, “As far as I know, the central bank will not move the exchange rate from its levels now in large proportions unless a full agreement is reached on a large number of shares collected once to sell them, in order to reap from 10 to 15 billion dollars at once.”
It is believed that “moving the exchange rate is expected to bring together some shares such as (Telecom Egypt), (Vodafone), (Damietta Container Handling), (Port Said Container Handling), and some shares in the 32 companies offered to strategic investors,” explaining that “ In my country, he sells them at once.”
Regarding whether the decision to raise the interest rate was right or wrong, Al-Hwaiti said: “Everyone agrees that raising interest and inflation in Egypt is not a result of purchasing power or that Egyptians have liquid funds; on the contrary, it results from the weak value of the currency against the dollar and the scarcity of the dollar.”
And he added, “But the only alternative before the central bank is to raise interest, and there is no other alternative before it. There are no third economic alternatives. Either it saves the dollar or raises the interest rate to limit the markets as much as possible, according to its point of view,” adding: “Although I think that this is not the solution.” “.
In the context, the Egyptian researcher believes that “there should not be a link between raising interest rates and floating because the two are completely different, and for years interest has been raised without floating, and there is no link at all between raising or lowering the interest rate or between the interest decision and the value of the pound against the dollar, as it is a link.” wrong”.
Regarding the extent of the success of raising the interest rate in compensating for inflation, Al-Hwaiti believes that “even if the Central Bank presented certificates of 25 percent or 30 percent, the interest will be negative because inflation is 40.26 percent, and there will be a difference of about 16 percent.”
He pointed out that “the possibilities of a rise in inflation exist, especially as we are on the verge of the summer months, the highest months of the year in terms of inflation.”
He concluded his speech by saying: “Even the declared interest, I do not think that it will compensate the Egyptians for inflation, even if the banks presented certificates higher than the current one (18 percent).”
“sarcasm and anger”
And through social media, Egyptians expressed their fears about the consequences of the decision, including the Egyptian banker Abdel Moneim Badawi, who wrote mockingly about the decision, expecting that the Egyptians are close to eating “dried” or “dried alfalfa”, after they ate chicken legs, and warned against floating New to the pound, indicating that “its actual price against the dollar is 40 pounds,” before deleting the post.
Commenting on the decision, economist Dr. Ibrahim Nawar wrote, under the title “Production or Death,” stressing that “production is the password to get out of the dark tunnel that we entered into,” explaining that “financing the state’s public spending is a black hole with unknown secrets, and debt is a source of destruction.” financially and morally significant.
He stressed that “the Central Bank’s decisions are worthless amid uncertainty surrounding Egypt’s economic future,” pointing to the existence of “new crises looming on the horizon that will continue until at least the end of 2024,” and expecting that “money will lose its value,” explaining that “the owners of bank deposits are the first victims of monetary policy.” and state finances.
He pointed out that the deposit return amounted to 18.25 percent, the core inflation reached 40.26 percent, and the net return was -22.01 percent.
And he stressed that, “from my point of view, it has become irrelevant (accidental) in relation to the market, and far from reality, especially with the increase in the strength of inflation drivers, and pressures on the value of the pound, which will inevitably drop to a new low level.”