CBE to decide on key interest rates Thursday for last time in FY2023/24

Doaa A.Moneim , Thursday 23 May 2024

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will convene Thursday to decide on key interest rates for the last time in FY2023/2024, amid expectations that it will maintain the current interest rates as inflation rates have started to take a downward path over the past two months.

The Central Bank of Egypt (CBE) headquarters, Cairo, Egypt. Photo: AP


In March and April, Egypt’s headline annual inflation declined to 33.3 percent and 32.5 percent from 35.7 percent recorded in February, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) readings.  

Moreover, the CBE’s calculations show that core inflation diminished in March and April by 33.6 percent and 31.8 percent from 35.1 percent in February.

Meanwhile, the prices of some commodities have started to decline over the past few months, particularly after the foreign exchange (FX) inflows entered the market and contributed to replenishing the FX liquidity in the market, along with the release of the stacked goods in ports.

The cabinet announced this week that Egypt has received the second tranche of the $35 billion Ras El-Hekma deal, signed with the UAE in February, worth $14 billion.

Additionally, the International Monetary Fund (IMF) is anticipated to complete the third review of Egypt’s extended $8 billion loan in June, unlocking over $800 billion for the country.

Egypt will receive around $1.3 billion upon completing each review, from the fourth to the eighth, till 2026.

Furthermore, the World Bank has committed $6 billion for the country; the European Union has pledged $8 billion, and the UK has announced $400 million to support Egypt’s economy against the severe impacts of the Israeli war on Gaza and tensions in the Red Sea.

In its last meeting, held in March, the CBE hiked the key interest rates by six percent (600 bps), bringing the total rises applied since the start of the year to eight percent (800 bps) and 19 percent (1900 bps) since the bank started its monetary policy tightening in March 2022.

Taming the soaring inflation is a cornerstone of the country’s Extended Fund Facility (EFF) loan deal with the IMF.

Accordingly, the CBE set a target for inflation at seven percent (±2 percent) by the fourth quarter of 2024 and five percent (±2 percent) by the fourth quarter of 2026.

Upon completing the first and second reviews under the loan programme, the IMF expected Egypt’s inflation rate to remain high over the medium term, reaching a peak of 32.5 percent in 2024 before shrinking to 25.7 percent in 2025.

HC Securities & Investment expects the CBE to keep the current key interest rates unchanged in its Thursday meeting.

“We expect the MPC to maintain the overnight deposit and lending rates at its upcoming meeting given the y-o-y deceleration in headline inflation for two consecutive months, despite m-o-m increases and improved FX liquidity after the Ras El-Hekma investment deal, following receiving around $25 billion from the UAE and the IMF,” explained Heba Monir, financial analyst and economist at HC Securities.

“This helped increase net international reserves (NIR) by c19 percent y-o-y and c1.7 percent m-o-m to over $41 billion in April and narrowed the net foreign liabilities (NFL) of the banking sector significantly by c81 percent m-o-m and c83 percent y-o-y to 4.1 billion in March,” she added.

In addition, the improvement in Egypt's one-year credit default swap (CDS) to 287 bps from 857 bps on 1 January and the recent improvement in its credit outlook by Moody's to positive from negative and to positive from stable by Fitch also support keeping the current interest rates, according to Monir.

Monir also highlighted the recent downturn of Egypt’s inflation rates which raises projections that CBE could maintain the current interest rates.

On the global level, the US Federal Reserve (Fed) maintained the benchmark interest rates at its current range of 5.25-5.50 percent after it hiked rates by one percent (100 bps) in 2023 and 4.25 percent (425 bps) in 2022, with a total of 5.25 percent (525) bps since it started its tightening policy. This policy came in response to the Russian-Ukrainian war and its implications on the global supply chains that have contributed to the commodity price spikes.

On Tuesday, European Central Bank President Christine Lagarde expected an interest rate cut to be applied in June on the back of the downturn path of the consumer price.

“It is a case that if the data that we receive reinforces the confidence level that we have — that we will deliver 2% inflation in the medium term, which is our objective, our mission, our duty — then there is a strong likelihood” of a move on 6 June, Lagarde told Ireland’s RTE One in an interview broadcast on Tuesday.


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