05:15 PM Friday, July 28, 2023
I wrote – Manal Al-Masry:
Experts and bankers believe that it is necessary to raise the interest rate at the Central Bank’s meeting next Thursday due to the acceleration of the inflation rate (the pace of price increase) and the high negative real rate of return on investment in the pound.
The Central Bank will hold the fifth meeting of the Monetary Policy Committee during the current year to discuss the interest rate next Thursday, after it decided to fix it in its last two meetings in May and June, to reach the level of 18.25% for deposits and 19.25% for lending.
Mahmoud Najla, Executive Director of Money and Fixed Income Markets at Al-Ahly Financial Investments Company, said that linking the central bank interest rate to future inflation figures – as it says in all its reports – requires raising the interest rate at its next meeting.
He explained that the increase in market liquidity rates (purchasing powers) may push the central bank to raise the interest rate at its next meeting to curb accelerating inflation and target a single figure by the end of next year.
Despite the Central Bank’s efforts to curb inflation, the annual core inflation rate – prepared by it – rose during June 2023 to 41%, compared to 40.3% in the previous May of the same year, marking a new historical level, according to what the Central Bank’s data showed.
This rise was accompanied by recording annual general inflation at historical rates, reaching 35.7% in June for the first time, compared to 32.7% last May, according to data from the Central Agency for Public Mobilization and Statistics earlier.
The current inflation rates far exceed the ambitious targets of the Central Bank announced before the end of last year at 7% (±2%) on average during the fourth quarter of 2024, targeting its decline to 5% (±2%) on average during the fourth quarter of 2024. 2026.
Mohamed Badra, a banking expert, said that the central bank needs to raise the interest rate at its next meeting by 1% to enhance the attractiveness of investment in the pound as well as reduce the negative return gap on savings in the pound due to inflation.
The real return on investment in the pound is the result of an arithmetic process that includes subtracting the inflation rate from the deposit rate with the Central Bank, so that the real return is approximately negative about 22%.
Badra explained that the Central Bank’s decisions to raise the interest rate by 10% over the last 16% month have paid off somewhat by absorbing liquidity and reducing purchase rates, which necessitates further raising.
The Central Bank had raised the interest rate 5 times by 10% during the last 16 months, the last of which was 2% last March and before that 8% during 2022, after the decline in the pound against the dollar affected the price increase (inflation rate).
2023-07-28 14:15:00
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