The asset-liability committees (ALCO) at banks, responsible for determining interest rates, are set to begin discussing the repercussions of the decision by the Central Bank of Egypt (CBE) to raise its basic interest rates by 2% on Thursday.
On 6 July 2017, the CBE’s Monetary Policy Committee (MPC) decided to raise the overnight deposit rate, the overnight lending rate, and the rate of the Central Bank of Egypt’s (CBE) main operation by 200 basis points (2%) to 18.75%, 19.75%, and 19.25% respectively. The discount rate was also raised by 200 basis points to 19.25%.
While the decision represented a shock to the market and a shock to the business community, deputy governor of the CBE Gamal Negm said that it aims to curb inflation and ease its impacts after hiking fuel prices.
Negm also expected the purchasing power of the pound to increase after raising interest rates and boosting inflows into the Egyptian banking system.
The National Bank of Egypt (NBE) and Banque Misr hold the largest share of deposits and loans in the Egyptian banking market. They also have savings certificates that give the highest return across the market in Egypt.
Sources at both banks said the fate of the savings vessels of the two banks would be discussed this week, stressing that no decision had been made on Saturday.
Meanwhile, one of the private banks confirmed that the other banks operating in the Egyptian market are looking forward to the decision of NBE and Banque Misr, as well as the interest rates on government debt instruments before making any decision on their interest rates.
Banks had ignored a similar decision taken by the CBE on 21 May 2017 to raise basic interest rates by 2%. Only a limited number of banks moved their interest rates up on their deposits, saving accounts, and saving certificates, which were linked to the CBE’s rates. Many expect this to happen again this week.