Pharos expects CBE to lower interest rates in March

CAIRO – 14 February 2019: Pharos Holding expected the Central Bank of Egypt (CBE) to cut interest rates by 1 percent during March meeting.

The investment bank elaborated in a research that the dynamics of the local inflation rate and the foreign ownership of debt instruments enhance the chances of a rate cut in the first quarter of 2019.

Regarding February’s meeting, Pharos said that the current reading of January makes the possibility to cut the interest rates this month weak. “We see that the possibility of lowering interest rates is weak, and if the committee takes a decision to reduce the rates, the ratio will probably not exceed 0.5 percent.”

The research explained that the environment is ready to reduce interest rates during the first quarter of this year, in light of the increasing demands of foreigners on the Egyptian pound- denominated treasury bills, and the subsequent flows of US dollars in Egyptian banks, in addition to the high exchange rate of the Egyptian pound.

It added that with their forecasts that inflation rates during the period from February to May will be supportive as they are expected to reach annual rates from 11.8 percent to 12.5 percent in each of the next four months, the research foresaw a decline in interest rates during March.

“Cutting interest rates might form some pressure on the Egyptian pound, but with current high price of exchange rate, the dollar will not exceed LE 18 as a result of this pressure and will not affect the inflation rate.

As per January’s inflation rate, Pharos attributed the hike of the monthly rate to prices of vegetables and food grains which rose 3.9 percent and 1.8 percent, respectively.
The research anticipated inflation rate to stabilize at 0.3 percent to 0.6 percent monthly and at 11.8 percent to 12.5 percent annually during the period of February to May 2019.

It also referred to the recovery of foreign ownership of debt instruments during January 2019 to hit $12 billion, according to Finance Ministry data.

In previous research, Pharos expected the CBE to keep its overnight lending interest rate at 17.75 percent in 2H FY2018/19. “However, as the global monetary policy normalizes, we expect the CBE to gradually bring down its overnight lending interest rate to 15.75 percent in FY2019/20 and 13.75 percent in FY2020/21.”

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