“Bankers suggest fixing interest rate at next Central Bank of Egypt meeting after inflation rate decline in April”

06:58 PM

Wednesday, May 10, 2023

I wrote – Manal Al-Masry:

Bankers suggested that the central bank fix the interest rate at its next meeting on Thursday after the next, after the inflation rate declined during the month of April, provided that there are no new developments regarding the exchange rate during the next few days.

The Monetary Policy Committee of the Central Bank of Egypt will hold its next meeting on Thursday, May 18, after raising the interest rate by 2% during its last meeting on March 30.

For the first of 10 months, the annual inflation rate for the entire republic slowed last April to 31.5%, compared to 33.9% compared to last March, according to a statement from the Central Agency for Public Mobilization and Statistics today, Wednesday.

The annual urban inflation rate during April was 30.6%, compared to 32.7% in March.

Install interest is the perfect choice

Mohamed Abdel-Aal, a banking expert, expected the Central Bank to fix the interest rate at its next meeting on Thursday after the next, especially after the decline in the inflation rate, and to avoid the negative consequences of raising interest.

Abdel Aal told Masrawy that maintaining the interest rate and not raising it will avoid the economy increasing the burden of the cost of borrowing on the private sector and the government, as well as its negative consequences of increasing inflation.

The central bank aims for the inflation rate to decline to 7%, with an increase or less of 2%, by the end of December 2024, and to decline to 5%, with an increase or less of 2%, by the end of 2026.

He added that any rise in the interest rate raises the rate of return on treasury bills, which is one of the financing tools the government offers weekly to bridge the budget deficit.

Dr. Mohamed Maait, Minister of Finance, had said in previous statements that every 1% increase in the interest rate raises the burden of the budget deficit between 30 and 32 billion pounds.

Abdel Aal explained that raising the interest rate will not have any effect on absorbing inflationary pressures, which is affected more than the supply shock due to the drop in the pound’s price against the dollar.

Mahmoud Najla, Executive Director of Money and Fixed Income Markets at Al-Ahly Financial Investments Company, suggested that the Central Bank would keep the interest rate unchanged at its next meeting.

He explained that there is no need for the Central Bank to move to raise the interest rate after the decline in the pace of inflation.

Sahar El-Damati, a banking expert, agreed with the previous expectation that the Central Bank would fix the interest rate at its next meeting in order to avoid its negative repercussions on the banking sector and the business community.

She explained that continuing to raise interest rates will lead to risks of declining the borrowing rate in banks, as well as increasing the interest burden on the business community.

Lifting is possible in this case

Mahmoud Nagla linked the possibility of the Central Bank raising the interest rate at its next meeting in the event that a decision is taken to lower the pound’s rate against the rest of the foreign currencies within the economic reform program supported by the International Monetary Fund at a value of 3 billion dollars.

He explained that the decline in the price of the pound against the dollar may require the Central Bank to raise interest to absorb the resulting inflationary pressures and motivate customers to save more than buy.

Egypt’s return to a flexible exchange rate policy – after it was suspended throughout the years 2020 and 2021 due to the consequences of Corona – led to an increase in the price of the dollar against the pound by about 96%, from 15.76 pounds on March 20, 2022 to 30.94 pounds currently.

Mohamed Abdel-Al said that the rate hike at the next Central Bank meeting, if it occurs, will be in accordance with the existence of a requirement from the International Monetary Fund within the scope of the Fund’s review of the economic reform program.