11:11 PM
Sunday 18 December 2022
Books – Mustafa Eid:
HC Securities and Investment Company had expected the central bank to raise interest rates by 2% at its last Monetary Policy Committee meeting this year next Thursday to tackle inflation.
The next meeting comes after the central bank raised interest rates by 2% during an extraordinary meeting on Thursday, October 27, which was accompanied by the announcement of a flexible exchange rate regime subject to supply and demand mechanisms. which led to a significant drop in the pound, to boost the price of the dollar from this day. As of last Thursday’s trading, it was up 25.2%.
After the increase in October, interest rates at the Central Bank reached 13.25% on deposits and 14.25% on loans.
“We expect the Monetary Policy Committee to raise the interest rate by 200 basis points to counter inflation and attract inflows that benefit from price differences,” said Heba Mounir, banking and macroeconomic analyst at HC Securities and Investment.
He added: “Inflation accelerated in November, rising to 2.3% m/m and 18.7% y/y, beating our estimate of 16.5%. This acceleration, coupled with the current lack of inflows of foreign capital, led to our expectation of a one-year inflation rate of 19.1% in December.
Heba Mounir said the value of the Egyptian pound has declined by 36.2% year-to-date due to pressures building up on Egypt’s balance of payments and rising external debt obligations.
And he indicated that the external debt-to-GDP ratio is expected to rise to 38.8% in the 2022-2023 fiscal year from 37.7% in the 2021-2022 fiscal year, according to official estimates.
Heba Mounir said net foreign exchange reserves fell about 18% year on year in November to $33.5 billion, on a 67.7% year-on-year increase in gold reserves, compared with a 22% decline. .3% of foreign currencies on an annual basis. basis.
Mounir said pressures include a drop in August Egyptian remittances abroad, 8 percent month-on-month, to $2.2 billion, as well as broadening the position net foreign liabilities of the banking sector excluding the central bank, to $16.4 billion in October, down from $5 billion in the same period a year earlier.
He added that foreign currency deposits, which are not included in official reserves, also fell to $1.67 billion in November from $11.5 billion a year earlier.
Mounir said the average after-tax 12-month Treasury yield yield reached 15.99% (taking into account the 15% tax rate for US and European investors) in the Dec. 8 offering with a bid-to-cover ratio of 3.20x, indicating the need to increase yields.
Egyptian 12-month treasuries currently offer a negative real yield of 0.1%; The calculation of the expected 200 basis point increase will attract inflows benefiting from price differences, according to Heba Mounir.
