Mubasher Trade expects CBE to cut interest rates by 100-200 bps

CAIRO – 29 March 2018: Mubasher Trade expected the Central Bank of Egypt's Monetary Policy Committee (MPC) meeting to cut the interest rates by 100 to 200 basis points, according to a report issued on Thursday.

The meeting of the Monetary Policy Committee will be held on Thursday March 29.

The research company attributed the expectations of the interest rates’ decline to the decrease of the inflation to its lowest levels in February since the flotation of the Egyptian currency in 2016.

The annual inflation decreased to 14.4 percent in February, down from 17.1 percent in January.

The report saw that CBE has reasonable room to cut the rates while maintaining a positive real interest rate.

Inflation jumped in Egypt after the country floated its local currency in November 2016, reaching a record high of 33 percent in July 2017, as a result of the pound losing 50 percent of its value and the cutting of energy subsides.

The second reason behind the expectations to cut the rates is that the high interest rate achieved its target, the report said, clarifying that since the flotation and the interest rates' 3 percent increase, the flow to the Egyptian domestic debt market marked about $20 billion.

It added that these flows have reached a peak and will begin to decline gradually.

The report anticipated that the Egyptian economy no longer depends on its dollar liquidity flow with the same strength, especially with Egypt's intention to secure external liquidity through long-term debt as well as gradually recovering dollar resources from tourism and direct investment.

The report said that the foreign investors expected earlier the decline of interest rates so their treasuries began to fall by the end of 2017.

It added that the yield on T-bills is not only linked to interest rates, but is also affected by the exchange rate and inflation expectations, which determine the attractiveness of the return on treasury bills to the foreign investor.

The third and final reason for the decline of interest rates according to the report is that this is the best time to make such a decision especially with the low rates of inflation.

The report explained that the upcoming period might witness an increase in the inflation rates, coinciding with Ramadan and the feast, followed by financial reforms with the beginning of the new fiscal year.

The report further anticipated that interest rates might witness another cut by the end of this year.

Pharos Research also predicted earlier that the Monetary Policy Committee of the Central Bank of Egypt will cut the policy rates by 100 basis points, following the inflation’s decline in February.

Fitch anticipated in a report that the central bank will cut rates further this year by potentially another 200-300bps, while maintaining positive real interest rates even as global rates rise.

The Monetary Policy Committee of the Central bank of Egypt (CBE) lowered the interest rates by 1 percent in February, for the first time since the November flotation.

The overnight deposit rate now stands at 17.75 percent, down from 18.75 percent. The overnight lending rate is 18.75 percent, down from 19.75 percent.