5:47 pm
Saturday 10 December 2022
I wrote – Manal Al-Masry:
A number of bankers, with whom Masrawy spoke, expected the central bank to resort to one of two options this month, either by raising the interest rate again by 2% on deposits and loans, or by issuing a certificate with a high interest rate of no less than 20% through government banks with an increase in the required liquidity reserve ratio of deposits.
The bankers, who spoke to Masrawy, indicated that this could come through an anticipated extraordinary meeting of the central bank during this week or at the scheduled meeting of the Monetary Policy Committee on Thursday after next.
These expectations fit into a state of waiting for the issuance of final approval by the International Monetary Fund at next Friday’s Executive Committee meeting on a program of cooperation with Egypt in economic reform for a period of 46 months and a financing of 3 billion dollars, which is expected to approve the delivery of the first tranche to Egypt worth 750 million dollars during this meeting.
According to the bankers, the Central Bank needs to raise the interest rate with the aim of attracting indirect foreign investment in Egyptian debt instruments, which is crucial for its contribution to strengthening exchange rate stability as well as the existence of a real yield on the savings of bank customers to protect them from erosion due to the high rate of inflation, i.e. (the pace of price increases) according to the prescription of the International Monetary Fund.
The agreement with the Monetary Fund, initially approved, provides for Egypt to obtain a financing package worth 9 billion dollars, of which 3 billion directly from the International Monetary Fund, 1 billion from its Sustainability Fund and 5 billion from international and regional partners, with the aim of bridging the gap and funding gap.
Muhammad Badra, a former head of a Gulf bank, expected the central bank to immediately raise the interest rate by 2% at the next meeting of the Monetary Policy Committee with the aim of attracting indirect foreign investment in public debt instruments ( treasury bills), which would contribute to supply abundance and limit speculation on the dollar.
Badra explained to Masrawy that the central bank needs instead to raise the interest rate to compensate individual bank savers from the increase in the rate of prices (inflation), with the aim of motivating them to continue their investment in banks and the elimination of dollarization (the black market).
Badra indicated that the date of the Monetary Policy Committee meeting will not affect his expectations for higher interest, whether it was an exceptional event during this week or arrived as planned in the Thursday 22 meeting schedule. December.
The central bank’s expected interest rate hike comes more than a month after its decision to raise the interest rate by 2% at an extraordinary meeting of the Monetary Policy Committee on Oct. 27, coinciding with the decision to liberalize the exchange rate, i.e. deposit and 14.25% on loans.
The central bank’s decision to raise the interest rate and liberalize the exchange rate helped Egypt obtain an initial green light from the International Monetary Fund for its loan application, as the fund’s statute of limitations is it usually relies on the central bank abandoning support for sterling and the existence of a real return on customers’ savings.
The real yield is calculated by subtracting the interest rate applied in the banks from the inflation rate: if the result of the calculation is a savings yield higher than the inflation rate, then the real yield is positive or vice versa.
Badra stressed that the main role of the central bank rests on containing inflation through various tools, including raising interest rates, rather than supporting output or raising growth rates, which fall on the shoulders of ministries and of other agencies.
And the Central Bank announced in a statement on its official website yesterday, Thursday, that the core inflation rate rose last November to 21.5%, compared to 19% last October.
According to data from the Central Agency for Public Mobilization and Statistics, the annual urban inflation rate rose to 18.7% in November, up from 16.2% in October, exceeding the central bank’s targets for the latest quarter of this year to 7%, an increase or decrease of 2%.
The deputy head of the treasury sector at a private bank told Masrawy that the central bank could raise the interest rate by 2% simultaneously on loans and deposits at its next meeting, or it could resort to another option by issuing a certificate high-yield by 20% and raise reserve requirements on banks again.
He added that these measures would aim to curb inflation and, if they take place during this week, their goals would also include obtaining final approval of the Fund to inject a loan into Egypt, which would help it attract indirect foreign investment.
The source pointed out that the interest rate hike will contribute to the entry of foreign global funds to invest in the Egyptian pound, with the help of the International Monetary Fund, as these investments are one of the factors affecting the price stability of the Egyptian pound. currency with an increase in supply relative to demand, which can lead to a drop in the price of the dollar to the level of 22 pounds.
Dr Mostafa Madbouly, prime minister, earlier said that between $20 and $23 billion worth of indirect foreign investment had left Egypt since the Russian-Ukrainian conflict began.
The deputy head of the treasury sector suggested that the central bank would prefer the option of raising the reserve requirement ratio and offering a 20% high-yield certificate to the National Bank and Egypt, to implement its monetary policy more more effective than the increase in interest rates on deposits and loans, and in such a way as not to lead to an increase in the debt burden, especially on businesses, after the initiative to finance the sector at a rate reduced.
Last September, the Central Bank of Egypt raised the required liquidity reserve ratio of bank deposits to 18% instead of 14%, and it is one of the tools in the hands of central banks around the world to curb inflation by withdrawing liquidity from banks.
And the Central Bank has stopped supporting the industry initiative, which has a low interest rate of 8% a year, with a declining yield, after banks pumped £345bn of funds into it within 3 years of the its launch in 2020, according to what was officially announced recently by Gamal Negm, Deputy Governor of the Central Bank.
