The Monetary Policy Committee is scheduled to be held in Egyptian Central Banka meeting, today, Thursday, to consider key interest rates, amid expectations that the Central Bank of Egypt will continue its strict policy.
In a recent research note, the investment bank “Al-Ahly Pharos” expected that the central bank would raise interest rates during the meeting by 2%. The investment bank, “Hermes” and the “Beltone” financial holding group, suggested that the rate of increase in interest rates ranged between 0.5 and 1%.
The Central Bank of Egypt surprised everyone by holding an extraordinary meeting of the Monetary Policy Committee on March 21, when it decided to raise interest rates by 100 basis points on deposit and lending, to reach 9.25 and 10.25 percent, respectively.
HC Securities and Investment suggested that the Central Bank of Egypt would raise interest rates by 200 basis points at its next meeting scheduled for today.
“April inflation figures were above our 12.3% estimate and the average analyst estimate in a Archyde.com poll of 11.8%, driven by a 48.8% year-on-year increase in fruit and vegetable prices, in When the prices of bread and cereals increased by 28.5% year on year.
She added, “We believe that there are several factors that led to food price inflation, including the seasonal increase in demand during Ramadan, the devaluation of the Egyptian pound by 18% since March 21, and the increase in global prices in the wake of the Russian-Ukrainian war.”
Although food prices may calm down relatively in the next month with the demand balance after Ramadan, I expected food prices to be the main driver of our expected average inflation at 14.0% over the remainder of 2022 due to the weak purchasing power resulting from the decline Currency levels are directing most of the demand to basic foodstuffs.
She explained that inflows benefiting from the price differentials are necessary at this stage to support Egypt’s net foreign reserves. However, it will be difficult for Egypt to attract them, given the massive selling in emerging markets by foreign investors.
Monet Doss believes, it is still weak, with the coverage of government treasury bills offerings only at 3 to 4% for 9 months and 12 months, and coverage from 66% to 78% only for the shorter terms (in the offerings that took place from April 19 until now).
“We note that the returns on 3-month treasury bills have increased by 170 basis points since the interest rate hike in March, while the 12-month treasury bills have increased by only 49 basis points.”
Given our projected May-December 2022 inflation estimate of 14.0% and a 15% tax rate on T-bills income for US and EU investors, Monet Doss sees the 12-month Egyptian Treasuries offering a negative real yield of 239 basis points.