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Saturday, 07 December 2019

Egypt's central bank set to review interest rates on Thursday

The CBE slashed interest rates thrice this year with a total of 3.5 percent. A number of economists expect another cut of 0.5 per cent or one per cent on Thursday

Doaa A.Moneim , Wednesday 13 Nov 2019
The Egyptian Central Bank offices in Cairo, Egypt (AP)
The Egyptian Central Bank offices in Cairo, Egypt (AP)
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The Central Bank of Egypt's (CBE) Monetary Policy Committee (MPC) is scheduled to review its key lending and deposit interest rates during its much anticipated meeting on Thursday.

The committee's upcoming meeting will be the seventh convened to review interest rates in 2019. Since its first meeting this year, on 14 February, the committee cut interest rates thrice with a total of 3.5 percent, or 350 basis points (bps).

Egypt’s annual inflation rate plummeted to 2.4 percent in October 2019, down from 17.5 percent in October 2018, recording the lowest annual inflation rate since 2002, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS).

Egypt's cabinet media centre announced in October that unemployment in Egypt hit its lowest rate in 30 years, with 7.5 percent in the second quarter of 2019, down from 9.9 percent during the same period of 2018.

The drop was driven by the implementation of 9,039 state projects from July 2014 to December 2018 at a total cost of EGP 2.1 trillion, in addition to loans and facilities granted to companies and micro and small enterprise institutions at a value of EGP 144.2 billion from December 2015 to June 2019, serving over 565,000 clients, reported the cabinet's media centre.

On Thursday, the MPC may introduce the fourth cut in interest rates in 2019.

Banking expert and former managing director at Emirates NDB Sahar El-Damati told Ahram Online that the MPC was expected to decrease interest rates by 0.5 percent (50 bps) or one percent (100 bps) in its meeting on Thursday.

The anticipated decrease, according to El-Damati, is driven by the unprecedented drop in annual inflation rates. After all, she added, the MPC's target is to stabilise market prices.

"The CBE has to lower interest rates to decrease the burden on investors and manufacturers who have been shouldering heavy financial costs as a result of the high interest rates in previous times," she said, adding that "the lowered interest rates will reduce the prices of commodities in the domestic market and increase the profits of investors and manufacturers. It's a win-win."

Economic expert Yasser Agiba also expects the MPC to drop interest rates by 0.5 percent (50 bps) driven by the committee's tendency to respond to improvements of macroeconomic indices and the decreased annual inflation rate.

Trading Economics, an online economic platform, anticipated that interest rates would go down to 12.75 percent by the end of current quarter, based on its macro models and analysts' expectations.

The platform estimated that interest rates would stand at 12.5 percent in 12 months' time, while in the long-term Egypt's interest rates would be projected to trend around 12 percent.

A Reuters poll showed that the CBE would likely cut interest rates on Thursday, driven by the recent drop in inflation.

Eight out of 14 economists surveyed by Reuters anticipated the cut to stand at one percent (100 bps), two predicted a 0.5 percent ( 50 bps) cut, two foresaw the bank slashing 1.5 percent (150 bps), and two expected no change.  

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