Expectations of a new hike in interest rates at the central bank at the end of the week

Expectations of a new hike in interest rates at the central bank at the end of the week
Expectations of a new hike in interest rates at the central bank at the end of the week
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I wrote – Manal Al-Masry:

Bankers, Masrawy spoke to, expected that the Central Bank would raise the interest rate again on deposits and lending at the first meeting of the Monetary Policy Committee during the year 2023 on Thursday after next.

The bankers suggested that the central bank would raise the interest rate by 1% to 2% to control the high inflation rates (the pace of price increase), and to absorb the future effects resulting from the depreciation of the pound against the dollar during the current month on inflation, as well as the prospects for the direction of the Federal Reserve (the central bank). US) to raise interest.

The Monetary Policy Committee of the Central Bank will hold the first meeting to decide the fate of interest during this year on Thursday, February 2, which comes after raising the bank’s interest rate by a total of 8% over the past year, the last of which was 3% at once on December 22, bringing the bank’s interest rate ( Corridor) to 16.25% for deposit, and 17.25% for lending.

Sahar El-Damaty, a banking expert and former vice-president of Banque Misr, expected the central bank to raise the interest rate by between 1 and 2 percent in the next week, although she sees the preference for fixation to ease the pressure on the cost of lending on the private sector.

He agreed with Sahar Al-Damaty on expectations of raising interest during the next meeting of the Monetary Policy Committee. Mahmoud Nagla, Executive Director of Money and Fixed Income Markets at Al-Ahly Financial Investments Company, in addition to a member of the Board of Directors of a private bank.

Al-Damaty told Masrawy that the central bank may resort to the decision to raise the interest rate again with the aim of controlling the high inflation rate, i.e. the pace of price increase by absorbing liquidity from the market (reducing purchase rates), which helps it in falling prices.

The core inflation rate prepared by the Central Bank rose from 21.5% last November to 24.4% last December, which is the highest level in nearly 5 years.

The annual inflation rate in cities also rose during last December to 21.3%, compared to 18.7% last November, while it recorded nationwide at 21.9%, compared to 19.2%, according to a statement from the Central Agency for Public Mobilization and Statistics earlier this month.

Mahmoud Najla suggested that the Central Bank would raise the interest rate by 1% at its next meeting to absorb the high inflation rates, which would help it reach its targets with downward inflation.

Najla said, to Masrawy, that raising the interest rate will have negative consequences due to the increase in the cost of borrowing on the private sector, but the global conditions that are currently taking place, and the International Monetary Fund’s method of reform impose its tools on the need for interest rates to be in line with inflation rates by increase or decrease.

And the Central Bank of Egypt announced, in the Monetary Policy Committee report last month, targeting an average downward inflation to achieve price stability in the medium term, by the end of 2026, after the previous target inflation rate exceeded 7%, with an increase or decrease of 2% during the last quarter of 2022.

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The Central Bank set new targets for the inflation rate at 7% (±2%) on average during the fourth quarter of 2024, targeting its decline to 5% (±2%) on average during the fourth quarter of 2026.

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Nagla stated that the reflection of the central interest rate hike on the entry of indirect investments into Egypt will appear based on the International Monetary Fund’s confirmation of Egypt’s commitment to a flexible exchange rate, and the start of the dollar’s ​​trend to a reverse level and reaching a equilibrium rate, that is, the trend to decline against the pound, in addition to the impact of the US Central Bank’s moves.

A member of the board of directors of a private bank agreed, with previous expectations, that the Central Bank would raise the interest rate by a rate ranging from 1% to 2% at its next meeting after the rise in inflation rates, in order to absorb excess liquidity.

But at the same time, he believes that the hike will only be moral and will not be feasible in the short term, with the Federal Reserve (the US Central Bank) continuing to raise interest on the dollar, which reduces the appetite of global funds to return to invest in the pound temporarily.

The Central Bank takes into consideration interest rate calculations the moves of the US Central Bank in its next meeting on Tuesday and Wednesday, one day before the meeting in Egypt, to raise the interest rate on the dollar and its consequences on the appetite of foreign investors in debt instruments, given that it is one of the tools used to stabilize the price of debt. The exchange is driven by the purchase of the pound against the sale of the dollar.

The US Federal Reserve raised the interest rate for the seventh time in a row at its last meeting by 0.5%, to record the interest rate on the dollar between 4 and 4.5%, amid expectations of a trend for further hikes during the current year to curb high inflation in America to levels recorded for the first time in 40 years ( although it has been declining recently).

The member of the Board of Directors explained that the Central Bank’s continuation of raising the interest rate will enhance the return of foreign investors to Egypt in light of the high risks in the world and the state of uncertainty.

The Russian-Ukrainian war caused an outflow of indirect foreign investments from Egypt worth $22 billion, according to what was announced at the time of Prime Minister Mustafa Madbouly.

However, indirect investments returned again to the Egyptian market during the month of January, after the Central Bank monitored the entry of inflows worth $925 million, starting from the middle of this month.

The International Monetary Fund, in the statement related to its final approval in mid-December, to pump a loan to Egypt of about $3 billion, announced the commitment of Egypt’s monetary policy represented by the Central Bank to follow a strict policy based on raising interest to curb inflation and a flexible exchange rate for the pound against the rest of the dollar. foreign currency.

On October 27, the Central Bank announced a free exchange rate for the Egyptian pound against foreign currencies, which helped Egypt obtain the approval of the International Monetary Fund for the loan.

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