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Wednesday, 30 September 2020

Monetary Policy Committee likely to keep CBE’s interest rates unchanged: Experts

Doaa A.Moneim , Wednesday 13 May 2020
CBE
The Egyptian Central Bank offices in Cairo, Egypt (Photo: Reuters)
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The Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) is scheduled to hold its fifth meeting in 2020 on Thursday to review the key interest rates amid expectations that the MPC will keep the currently rates unchanged.

On 2 April, the MPC decided to keep the CBE’s overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 9.25 percent, 10.25 percent, and 9.75 percent, respectively.

The discount rate was also kept unchanged at 9.75 percent.

Almost all Egyptian investment banks and experts expect that the MPC will keep the interest rates unchanged.

Senior economic analyst at Prime Holding Mona Bedir expects that the MPC will keep the interest rates on Thursday, as introducing new cuts would have limited effects on supporting the market amid the uncertainty during the COVID-19 outbreak.

Bedir said that Egypt’s annual inflation rates rose in April for the second month to 5.9 percent, up from 5.3 percent in March, while the monthly inflation rate rose to 1.6 percent in April compared to 0.6 percent recorded in March, and these rates remain within the CBE’s targeted inflation rates of 9 percent (± 3%).

Meanwhile, Pharos Holding said in its recent analysis that the CBE cut the interest rates by 3 percent (300 bps) one time in March in response to the COVID-19 outbreak and to contain its implications on the national economy, thus, it is highly unlikely that new cuts be introduced.

On the other hand, Trading Economics expects the interest rate to drop to 8 percent by the end of the second quarter of 2020.

TE estimates the interest rate to stand at 6.75 percent in 12 months’ time, while in the long-term, it is projected to trend around 7 percent in 2021 and 7.50 percent in 2022, according to its econometric models.

For inflation rates, TE expects they will to soar to 7.3 percent by the end of this quarter, which ends in June, and to stand at 8.5 percent in 12 months’ time, while in the long-term, the inflation rate is projected to trend around 7.6 percent in 2021 and 7.5 percent in 2022.

The CBE announced on Monday that the monthly core consumer price index CPI inflation, computed by the CBE, recorded 1 percent in April 2020, up from 0.4 percent in the same month in 2019 and from 0.4 percent recorded in March 2020.

It added that the annual core inflation rate recorded 2.5 percent in April, up from 1.9 percent recorded in March 2020.

The Central Agency for Public Mobilization and Statistics (CAPMAS) announced on Sunday that the annual (headline) inflation rate for April has jumped to 5.9 percent, up from 4.6 percent in March, increasing more than 1 percent, the highest rate since January.

It came under the rate registered in April 2019, which was 12.5 percent, according to CAPMAS.

The monthly inflation rate was also up to 1.6 percent in April, up from 0.6 percent in March.

On 16 March, the MPC decided in an unscheduled meeting to cut the overnight deposit rate, the overnight lending rate, and the rate of the main operation by 300 basis points to 9.25 percent, 10.25 percent, and 9.75 percent, respectively, which were kept unchanged in the April meeting.

The unprecedented cuts came on the back of the global developments following the COVID-19 outbreak, as the CBE said.

The MPC’s preemptive decision provides appropriate support to domestic economic activities given the current challenging global environment, while the inflation outlook remains consistent with achieving the inflation target of nine percent (±3 percentage points) in the fourth quarter of 2020, according the CBE.

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