Books – Manal Al-Masry and Mustafa Eid:
Analysts and bankers who spoke with Masrawy expected that the central bank would raise interest rates for the second time in a row by between 1% and 2%, at the next meeting of the monetary policy committee of the bank scheduled to be held on May 19, but some of them linked this increase to developments in the situation locally and globally.
This comes in light of expectations that inflation rates will continue to rise to a record high in the coming months after exceeding the central bank’s targets in March, in addition to the direction of the Federal Reserve (the US central bank) to raise interest rates on the dollar at its next meeting.
While others believe that the recent offering of a high-return savings certificate in Al-Ahly and Egypt banks at 18% is sufficient to face the rise in inflation during the coming period, and therefore there is no need for a new interest hike at the Central Bank.
The next meeting comes after the Central Bank of Egypt suddenly raised interest rates by 1% in an exceptional meeting on Monday, March 21, to reach 9.25% for deposit and 10.25% for lending, the same day that the National Bank of Egypt and Egypt began offering a high savings certificate. Return of 18%.
This coincided with what Tariq Amer, Governor of the Central Bank of Egypt, described as a correction move, when the price of the pound witnessed a noticeable decline against foreign currencies, as the price of the dollar rose by about 16% during the days of March 21 and 22.
The Monetary Policy Committee of the Central Bank had fixed interest rates in the bank during 10 meetings (including 8 meetings held in 2021), the last of which was the committee’s first meeting in 2022 on the third of last February.
Another rate hike?
Mona Badir, chief economist at Prime Securities, expects the central bank to raise interest rates by 1% during the next meeting on May 19.
Mona Badir, in a report to Prime, said: “The CBE will have inflation readings for March and April at its next meeting on May 19. Both are on the way to exceeding the upper limit of the current CBE target, as we expect inflation in April to reach about 10.6-11%, Which means another 100 basis point rate hike is on the way.”
The central bank sets a target range for the annual inflation rate at the level of 7% (+ or minus 2%) on average during the fourth quarter of 2022.
The annual inflation rate in cities in March exceeded the maximum of this target, rising to 10.5% in March, compared to 8.8% in February, according to data from the Central Agency for Public Mobilization and Statistics issued yesterday, Sunday.
The annual inflation rate for the total of the Republic also rose last March for the fourth consecutive month, recording 12.1%, compared to 10% in February.
The monthly inflation rate for the whole of the republic recorded 2.4% in March, compared to 2% in February.
The monthly inflation rate in cities reached 2.2%, compared to 1.6% in February, and in the countryside, it reached 2.7%, compared to 2.3% in January.
On Sunday, the Central Bank of Egypt also announced an increase in the annual core inflation rate to 10.1% last March, compared to 7.2% in February.
Mona Badir stated that monthly inflation is still expected to be driven in April by another increase in gasoline prices, and that the impact of the devaluation of the pound will be felt over the coming months.
“Inflation prognosis remains shrouded in uncertainty, with a peak expected in the summer. As a result, we have updated our 2022 forecast to an average of 12%, with inflation peaking in the summer.”
Radwa Al-Swaify, head of research at Al-Ahly Pharos Securities Brokerage Company, told Masrawy that the central bank is expected to monitor developments in the markets, especially after raising interest rates by 1% and offering high-return savings certificates of 18% last March to withdraw liquidity and compensate savers.
She added that through this monitoring, the bank will be able to determine whether or not there is a need to raise interest rates by another 1%, which is related to more global developments and the severity of the US interest rate hike, as well as the market’s reaction to the measures that occurred on March 21.
The Federal Open Market Committee of the Federal Reserve (the US central bank) will hold its next meeting to discuss the fate of interest on May 3 and 4, amid expectations that it will fluctuate between raising it by 0.25% or 0.50%.
This comes after raising US interest rates for the first time since 2018 at the committee’s meeting last month, by 0.25% to counter inflation, which jumped to its highest level in nearly 40 years.
Sahar El-Damaty, a banking expert and former Vice President of Banque Misr, agreed, saying to Masrawy, that the Central Bank’s raising of interest for the second time in a row at its next meeting will be dependent on the US Federal Reserve raising interest in early May.
Eldamaty expected that if the Federal Reserve raises interest rates by 0.5%, and supports some recent expectations, the Central Bank of Egypt will move to raise interest rates by 1% during its meeting next May, with the aim of preserving indirect foreign investments and facing inflationary pressures.
The US Federal Reserve’s decision to raise interest rates usually affects the decisions of the rest of the central banks in the world, especially in emerging countries, which often follow the same path to maintain their attractiveness for indirect foreign investments in debt instruments to support their currency against the dollar and for fear of its exit.
Sahar Al-Damaty stated that the certificate with a return of 18% contributed to individuals obtaining a rewarding return on their investments in Egyptian pounds in banks, which helps them to face the rise in prices due to imported inflation, as well as motivating the public to sell dollars in favor of investing in the certificate.
Mohamed Abdel-Al, a banking expert and member of the board of directors of a private bank, expected to Masrawy that the central bank would take a decisive decision to raise interest rates by between 1% and 2% at once in the next meeting.
Abdel-Al told Masrawy that the central bank tends, at a time of crises and global conflicts and their repercussions on the local situation, to take a decisive decision, which is expected with the rise in inflation rates and the direction of the US Federal Reserve to raise interest rates at its next meeting.
He added that the central bank’s decision in the next meeting will be the most difficult decision regarding interest rates this year due to the consequences resulting from whether raising or fixing interest, so the decision makers in the Monetary Policy Committee are in an unenviable position, because of this very difficult stage at the level of emerging countries and the world. .
Abdel-Aal stated that the Central Bank will be forced to raise interest rates for the second time in order to control inflation and maintain the attractiveness of indirect investments, as well as due to the unusual circumstances resulting from the Russian-Ukrainian conflict and its consequences for the deterioration of the global economy, increase in prices and lack of supplies.
Mohamed Abdel-Aal explained that raising the interest rate, although it is inevitable, will lead to an increase in the cost of debt and the budget deficit and impede achieving its goals, and a decline in growth and production rates due to the high operating cost.
No new upload in May
Tamer Al-Sadiq, deputy head of the international transactions sector in a private bank, told Masrawy that the central bank took exceptional and strong measures during the past month, including offering an 18% certificate in Al-Ahly and Egypt banks, which helps it face any pressures for a long period before raising interest rates again.
Tamer Al-Sadiq added that the new certificate provides a real return for individuals at 7.5% after deducting the basic inflation rate, which indicates the absence of the need to raise interest again to face inflation.
But at the same time, Al-Sadiq did not rule out that the US Federal Reserve’s raising of interest would prompt the Central Bank of Egypt to raise the interest rate by 1% again in order to relieve pressure on foreign exchange, in light of the presence of a flexible exchange rate that stimulates the continued entry of foreign investors and provides them with a rewarding return on Their investments in Egyptian debt instruments (treasury bills).