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Thursday, 24 September 2020

CBE likely to maintain key interest rates during Thursday's meeting

To contain the COVID-19 repercussions on the Egyptian economy, the CBE adopted a package of procedures that included slashing key interest rates in March by three percent

Doaa A.Moneim , Wednesday 12 Aug 2020
CBE
File photo: Central Bank of Egypt's headquarters is seen in downtown Cairo, Egypt (Photo: Reuters)
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The Central Bank of Egypt's (CBE) Monetary Policy Committee (MPC) is scheduled to hold its sixth regular meeting on Thursday to review the CBE's key interest rates amid expectations that the MPC will keep the current rates.
 
To contain the COVID-19 repercussions on the Egyptian economy, the CBE adopted a package of procedures that included slashing key interest rates in March by three percent (300 bps), the biggest since the floatation of the Egyptian pound in November 2016.
 
Key interest rates then reached 9.25 percent, 10.25 percent, and 9.75 percent for overnight deposit rate, overnight lending rate, and the rate of the main operation, respectively, by 300 basis points, while the discount rate was cut to 9.75 percent. These rates were maintained in previous meetings.
 
The Central Agency for Public Mobilisation and Statistics (CAPMAS) announced on Monday that Egypt’s annual headline inflation rate declined to 4.6 percent in July (the lowest since November), down from six percent in June, which came under the inflation limit that the CBE has set with nine percent (plus or minus three percent).
 
The annual inflation rate also dropped in cities to 4.2 percent in July, down from 5.6 percent in June, according to CAPMAS. The decline will likely encourage the MPC against introducing new interest rate cuts during Thursday's meeting.
 
Renowned investment banks in Egypt, including Pharos Holding, Prime Holding and Belton Financial, expect the CBE will not introduce new cuts on the back of slashing them by three percent in March, in addition to the latest announced inflation rate that is consistent with the CBE's limit.
 
In its recent report, the investment bank HC expected the same, writing that the stable inflation rate drive boosts HC's expectations for the interest rates, yet, the monthly inflation rate is projected to double to 0.8 percent on average in the second half of 2020, up from 0.4 percent recorded in the first half of the year.
 
HC's report also downgraded its projections for the annual headline inflation from eight percent to six percent in the second half of 2020.
 
The report attributed these expectations to the expected slow recovery of the tourism sector, the increase in the unemployment rate and the decrease in consumers' demand on goods.
 
Banking expert Hani Abul-Fotouh told Ahram Online that the MPC is expected to maintain the current interest rates.
 
"The Inflation rate is still in the safe zone. In addition, Egypt has the highest real interest rate among emerging markets and Egypt's treasury investment instruments provide the second highest risk revenues rate in emerging markets following Argentina. Thus, the CBE would like to keep foreign portfolio nourishment in the market and, consequently, it is expected to keep the interest rates unchanged," he added.
 
The MPC will hold three more meetings untill the end of 2020, while the next meeting is scheduled  for 24 September.
 
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