scheduled to take place Monetary Policy Committee of the Central Bank of EgyptHis last fight before the end of 2022, tomorrow, Thursday.
Analysts predict, according to recent polls, that policymakers will end 2022 with a significant 200 basis point hike in interest rates to support the Egyptian pound against the dollar and other foreign currencies and to curb rising inflation.
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A Reuters poll conducted on Tuesday predicted that Egypt’s central bank would hike its overnight deposit interest rate by 200 basis points tomorrow, Thursday, as part of its efforts to curb rising inflation after the sharp decline in the value of the currency local. The average forecast, in a survey of 12 analysts, was that the Central Bank of Egypt would raise interest rates on deposits to 15.25%, and interest rates on loans to 16.25%, at the regular meeting of the monetary policy.
The central bank raised interest rates by 200 basis points at a meeting on Oct. 27. On the same day, the local currency depreciated by 14.5% and the central bank announced it had reached a staff-level agreement on a $3 billion financial assistance package with the International Monetary Fund.
Despite the devaluation of the local currency, the gap between its price and the dollar continued to widen in official and parallel markets, as the dollar’s price reached around £24.70 in banks and over £36 on the black market. The official rate of the Egyptian pound against the dollar was 19.7 before the devaluation in October.
In the same context, the research department of the Securities and Investment Company “HC” has suggested that the Central Bank of Egypt will raise interest rates by 200 basis points to tackle inflation at its next meeting scheduled for tomorrow, Thursday.
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According to a recent research note, HC banking and macro analyst Heba Mounir suggested that the Monetary Policy Committee would raise the interest rate by 200 basis points to tackle inflation and attract inflows by benefiting from price differences.
Inflation accelerated in November, rising 2.3% month-on-month and 18.7% year-on-year, topping estimates of 16.5%.
Accelerating inflation rates coupled with the current shortage of foreign capital inflows led to an expected annualized inflation rate of 19.1% in December.
In addition, the price of the Egyptian pound has decreased by about 7% from October 27, 2022 to date, and by 36.2% from the beginning of the year to date, due to the accumulated pressures on the Egyptian balance of payments and the increase external debt obligations.
Mounir expected the external debt-to-GDP ratio to rise to 38.8% in the 2022/2023 fiscal year from 37.7% in the 2021/2022 fiscal year, according to official estimates.
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Net foreign exchange reserves fell nearly 18% year on year in November to $33.5 billion, on a 67.7% increase in gold reserves year-on-year, compared with a 22.3% decline in foreign currencies on an annual basis.
Remittances from Egyptians abroad decreased by 8% on a monthly basis last August, reaching 2.2 billion dollars.
The net external liability position of the banking sector excluding the central bank increased to $16.4 billion in October from $5.0 billion in the same period a year earlier.
Mounir indicated that foreign currency deposits, not included in official reserves, fell to $1.67 billion in November from $11.5 billion a year earlier.
While the repayment program of foreign debts owed by Egypt indicates an amount of 20.2 billion dollars during the 2022-2023 fiscal year.
The average yield on 12-month Treasuries, after tax, was 15.99% (including a 15% tax rate for US and European investors) in the December 8 offering at a bid ratio -to-cover of 3.20x, indicating the need to increase returns.
While 12-month Egyptian Treasuries currently offer a negative real yield of 0.1%, calculating the expected 200 basis point hike it will attract inflows by benefiting from price differences.
