The Central Bank of Egypt's (CBE) Monetary Policy Committee (MPC) is to convene its monthly meeting Thursday to announce its decision on whether interest rates will be cut or fixed for deposits and lending.
Many anticipate new interest rate cuts due to the recent decline in inflation, which dropped to 7.5 percent in August compared to 8.7 percent in July, achieving its lowest level in six years.
The unemployment rate has also notably dropped, from 15.9 percent in the second half in 2018 to 7.5 percent in the second half of 2019, according to statements by Prime Minister Mostafa Madbouly on Tuesday.
Meanwhile, the government debt ratio to GDP reduced from 108 percent at the end of June 2017 to 98 percent in 2018 and to 90.8 percent in 2019, while the Ministry of Finance is targeting a ratio of 77.5 percent by 2020, which would be lower rate than in 2011.
However, the worst performance of the Egyptian Stock Exchange since 2016, which saw losses exceeding EGP 66 billion in three sessions in a row, driven by significant foreign selling, has cast a shadow on the economy in general, and the investment scene in particular.
Banking expert Hany Abou-El Fotouh expects new interest rates cuts, including the overnight deposit rate, the overnight lending rate, and the rate of the main operation, by one percent (100 bps) and 1.5 percent (150bps) driven by the US Federal Reserve bank action that decreased interest rates by 0.25 percent, its second cut since late July, amid trade uncertainty and global economic challenges.
“But the key reason [to expect more cuts in interest rates] is the declining inflation rate. In this regard, new cuts are expected to stimulate the economy in general and help to get out of market stagnation. The new cuts, if approved, would be a positive action towards financing the debt-service as well,” Abou-El-Fotouh told Ahram Online.
Egypt’s interest rates are expected to be 13.25 percent, declining by one percent (100bps), by the end of the third quarter, which ends in September, according to Trading Economics' global macro models and analyst expectations.
Trading Economics anticipates interest rates to record around 12.50 percent in 2020.
Shuaa Securities also expects new interest rates cuts at 1 percent (100bps) and 1.5 percent (150bps).
Meanwhile, Beltone Financial Holding expects new cuts in the range between 0.5 percent (50bps) and 1 percent (100 bps) due to Egypt’s economic performance and decreasing inflation rates.
The MPC, in its last meeting held 22 August, decided to cut the CBE overnight deposit rate, overnight lending rate, and the rate of the main operation by 1.5 percent (150 bps) to 14.25 percent, 15.25 percent, and 14.75 percent respectively. The discount rate was cut by 1.5 percent (150 bps) to 14.75 percent.