CBE foreseen to hold interest rates Thursday: economists

CAIRO – 17 August 2017: The Central Bank of Egypt’s (CBE) Monetary Policy Committee meeting on Thursday is predicted by analysts to end with keeping interest rates on hold, amid expectations of easing inflationary pressures on the long term.

Although the “rule of thumb” theory is stating raising the interest rate should surpass the increase in inflation rates, there is no need to impose higher rates in light of July’s inflation, economic analyst at Pharos Holding Ramy Oraby said in a research note.
Despite the decline in yield on government treasures, “we deem it too early to start monetary easing in August,” Oraby said.

The return on Egyptian pound-denominated treasuries dropped by an average of two percent as of August 10, which Oraby said could result in interest rates’ cutting; “the fact that the Ministry of Finance accepted higher-than-initially-planned amounts would suggest the opposite prediction,” he said.

To achieve its target of reducing inflation rates to 13 percent (± three percent) by the fourth quarter of 2018, Pharos said maintaining the current interest rates would be appropriate.

HC Securities agreed with the aforementioned expectations. It said in a Wednesday note that the current interest rates will remain stable to benefit from them until inflation rates return to normal levels in September.

“We expect the latest interest rate to have a limited impact on mitigating inflation, which we expect to go back to normal levels in September,” senior economist at HC Securities Sara Saada noted.

In early July, the CBE decided to raise interest rates by two percent in a surprise move aimed to tame inflation, which is expected to rise over the coming period after slashing fuel and electricity subsides and following a one percent increase in the Value Added Tax (VAT).

The CBE hiked the overnight deposit rate to 18.75 percent from 16.75 percent and the overnight lending rate to 19.75 from 17.75 percent. This is the third time the CBE raises interest rates since the floatation of the Egyptian pound in November last year.