The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) is scheduled to convene its last meeting for 2022 on Thursday in order to evaluate the key interest rates in light of the most recent local and global economic developments, especially the growing inflation rates.
There are anticipation that the CBE would raise interest rates by a maximum of 2 percent (200 basis points) and deliver a further devaluation of the Egyptian pound against the US dollar.
It also follows the launch of a new 46-month economic restructuring plan funded by the International Monetary Fund (IMF), under which Egypt would receive a $3 billion loan.
Banking expert Ahmed Shawky predicted that the CBE would hike interest rates by 2% in reaction to the strong pace of inflation, which the CBE seeks to limit to about 7% (2%).
Shawky stated that the anticipated increase would not have a beneficial influence on the local market in the near future, particularly given that the surging inflation is a result of rising costs worldwide.
In an effort to curb inflation, the CBE has increased its benchmark interest rates by a total of 5 percent (500 basis points) and devalued the Egyptian pound by more than 30 percent since the Ukraine conflict began in March. In addition, indirect investments of $25 billion in local debt instruments have subsequently exited the market.
“Raising interest rates on Thursday, if implemented, would cause debt payment costs to skyrocket and will have a detrimental impact on the government’s goal of achieving equitable development by strengthening the private sector’s engagement in economic activity,” Shawky added.
Regarding the IMF agreement and its potential effect on Egypt’s monetary policy, Shawky said that the loan amount would not strengthen the country’s budget or balance of payments.
“The first instalment of the loan, which is $347 million, is comparable to barely 1.8% of the Suez Canal’s income over the preceding decade. “The agreement is only a testament to the Egyptian economy and a green light for Egypt to acquire further funds and strengthen its contacts with trade partners,” Shawky stated.
The IMF stated on Friday, following the announcement of the loan agreement, that the programme aims to set the value of the Egyptian pound freely against other currencies by implementing a flexible exchange rate. This would prevent the accumulation of chronic imbalances in the demand for and supply of foreign currency in Egypt, as well as preserve the central bank’s FX reserves.
Long-term, Shawky also projected that the US currency would continue its strength relative to the Egyptian pound.
In the meanwhile, HC Securities and Investment predicts that the CBE will hike the interest rate by 2% on Thursday in response to the rising inflation.
“Inflation surged in November, increasing by 2.3% (M-o-M) and 18.7% (Y-o-Y), above our prediction of 16.5%. This increase in inflation, along with the present lack of foreign currency inflows, led us to anticipate an annual inflation rate of 19.1 percent in December,” Heba Monir of HC Securities and Investment told Ahram Online.
According to the most recent readings issued by the Central Agency for Public Mobilization and Statistics, Egypt’s urban inflation continued to accelerate in November to reach its highest level in five years, registering 18.7 percent in November (CAPMAS).
Since October 27th, according to Monir, the Egyptian pound has devalued by 7% due to accumulating strains on Egypt’s balance of payment and hefty international debt commitments.
Official projections project that Egypt’s foreign debt-to-GDP ratio would climb to 38.8 percent in FY2022/23, up from 37.7 percent in FY2021/22. Moreover, the country’s net international reserves (NIRs) decreased by 18 percent (Y-o-Y) in November to $33.5 billion, with gold increasing by 67.7 percent (Y-o-Y) and foreign currencies falling by 22.3 percent (Y-o-Y). In August, remittances decreased by 8% month-over-month to reach $2.2 billion.