“Central Bank of Egypt’s Monetary Policy Committee to Decide Interest Rates Amid Slowdown in Inflation”

01:17 PM

Sunday, May 14, 2023

I wrote – Manal Al-Masry:

The Monetary Policy Committee of the Central Bank of Egypt will hold its third meeting this year to decide the fate of the bank’s interest rate next Thursday, amid expectations of fixing it, especially with the slowdown in inflation rates in Egypt.

The committee meeting next Thursday comes after raising the interest rate by 2% in its last meeting on March 30, bringing the total increase in the last 14 months to approximately 10%, and the bank’s interest rate (what is known as the corridor) reached 18.25% for deposits, and 19.25% for lending. .

Bankers, whom Masrawy spoke to, expected that the central bank would fix the interest rate at the next meeting of the committee, after the rate of inflation (commodity prices increased at a slower pace) slowed during last April.

Mohamed Abdel-Aal, a banking expert, said that there is no point in the Central Bank raising the interest rate next Thursday because this tool is not effective in curbing inflation and its dire consequences for increasing the state budget deficit.

Abdel Aal added that raising interest will be reflected in an increase in commodity prices in the market, as interest is one of the elements in determining the price of the final product, and thus will increase inflationary pressures and negatively affect the rise in inflation again.

The annual inflation rate for the entire republic slowed down last April to 31.5% compared to 33.9% compared to last March, and the annual inflation rate in cities during last April recorded 30.6% compared to 32.7% last March, according to a statement from the Central Agency for Public Mobilization and Statistics last Wednesday. .

The annual core inflation rate – prepared by the Central Bank – also declined during last April to 38.6% from 39.5% in March 2023, for the second time in a row.

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.

Abdel Aal mentioned that raising interest negatively affects the government side in terms of increasing the burden of borrowing on the government by issuing treasury bills and bonds 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-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.

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.

Najla explained, to Masrawy, that there is no need for the central bank to move to raise the interest rate after the decline in the pace of inflation.

“Raising the interest rate will only be linked to the Central Bank allowing the pound to decline to return to the flexible exchange rate policy within the $3 billion economic reform program supported by the International Monetary Fund,” according to Najla.

Sahar El-Damaty, the banking expert, agreed with the two previous expectations, 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 burden of interest on the business community.