5.09pm Wednesday 10 January 2024
Written by Manal Al-Masry:
Bankers and analysts Masrawy spoke with expected the Central Bank to raise interest rates by 2% and 5% at both its extraordinary and regular meetings of the Monetary Policy Committee next February, coinciding with the return to a flexible exchange rate. monetary policy, i.e. lowering the pound against the dollar.
They explained that the interest rate increase would reduce the negative return on customers’ savings and absorb inflationary pressures – i.e. a rise in commodity prices – due to the expected decline in the value of sterling against the dollar, with the imminent reaching an agreement with the International Monetary Fund to implement the two postponed reviews in preparation for the disbursement of approximately $700 million to Egypt.
The Central Bank increased the interest rate by 11% on 6 occasions in the last two years, including 4 times by 8% in 2022 and 2 times by 3% in 2023, bringing the interest level to 19.25%. on deposits and 20.25% on loans.
Usually, the increase in interest rates by the Central Bank coincides with its return to the exchange rate flexibility policy started in March 2022 after abandoning it during the Corona years 2020 and 2021, which led to an increase in the price of the dollar by around 96% against the pound, rising from £15.76 to almost £31 by the end of the year Banking transactions today.
Hani Genena, chief economist and investment strategist at Cairo Capital, a securities trading firm, expected the Central Bank to suddenly raise the interest rate to 5%, shocking the market, both in its extraordinary and regular meetings, with the The aim is to provide a real return that compensates customers for the high inflation rate at the same time as initiating exchange rate flexibility.
According to data from the Central Agency for Public Mobilization and Statistics, last year the annual inflation rate recorded a record level at the city level, close to 39%, before falling to 33.7% at the end of last December .
The annual inflation rate is still far from the Central Bank’s target of 7% with a 2% increase or less in the fourth quarter of 2024, and will fall to 5% with a 2% increase or less in the fourth quarter of 2024 2026.
A government document issued by the Council of Ministers this week, which will be presented at the community dialogue, revealed an inflation rate target of 9.2% from 2024 to 2028, falling to 5% by 2030.
Genena explained that the interest rate increase by the Central Bank will be part of a package of measures expected with some exchange rate flexibility and the price of the pound hitting the sweet spot against the dollar, which could help to eliminate the black market and unify the exchange rate.
He added that this will happen with banks also offering certificates with interest rates of up to 30% and 32% in exchange for the transfer of dollars to their sterling accounts by Egyptians working abroad, but under the condition that the citizen make sure that the dollar is under the control of Egyptian banks.
Emphasizing that all these tools will help the Central Bank eliminate the black market in the second half of this year.
The price of the dollar trades on the parallel market (the black market for currency trading) between 53 and 55 pounds, a difference of about 24 pounds compared to the official price of the banks, which some see as an exaggerated price due to the increase of price speculation and the shortage of foreign currency in the banking sector, To Masrawy observers previously said.
Mahmoud Nagla, executive director of money markets and fixed income at Al Ahly Financial Investments, said the Central Bank’s interest rate increase would depend on whether Egypt soon reaches an agreement with the International Monetary Fund for resume the loan program after postponing the implementation of two reviews scheduled for last March and September.
He explained that if an agreement is reached between Egypt and the International Monetary Fund, the Central Bank will increase the interest rate by 2% or 3% at its extraordinary or regular meeting in conjunction with the return to exchange rate flexibility , and without it therefore the situation will remain unchanged.
Bankers and economists Masrawy spoke to earlier this week suggested that the official price of the dollar against the pound in banks during the first quarter or half of this year is expected to reach between 38 and 52 pounds per dollar, with the goal of eliminatingdollarization and closing the dollar gap.
Egypt appears to be close to implementing the agreement with the International Monetary Fund after Kristalina Georgieva, Director General of the International Monetary Fund, met with a high-level delegation from the Egyptian government that includes Hassan Abdullah, Central Bank Governor Dr. Mohamed Maait, Minister of Finance, and Rania Al-Mashat, Minister of International Cooperation, together with Mahmoud Mohieldin, Executive Director of the International Monetary Fund, according to a statement today from the Ministry of Finance.
Georgieva stated, during the meeting, that the International Monetary Fund will remain a strong partner for Egypt in these difficult times, and at the same time the Egyptian delegation had positive, constructive and positive talks with Janet Yellen, US Treasury Secretary .
Najla added that the interest rate increase will aim to reduce the negative yield gap on customers’ savings after the inflation rate rises, as well as absorb inflationary pressures arising from the expected fall in the price of sterling against the dollar.
Mohamed Abdel-Al, a banking expert, expected that the Central Bank would raise the interest rate by 4% the first two times during the first quarter of this year, both in its February and March meetings next year, and another 2% during next year’s February or March meeting. in the second quarter, with the aim of creating an attractive return on Egyptian pound savings.
Abdel-Al tied Egypt’s return to exchange rate flexibility to the availability of foreign currency earnings of no less than 5 or 8 billion dollars in the hands of the Central Bank to prevent the price of the dollar from reaching unexpected levels and avert the risks of an increase in speculation on the black market.
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2024-01-10 15:09:00
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