The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold its third regular meeting this year to discuss the fate of the CBE’s key interest rates, the most important indicators of the pound’s interest rate in the Egyptian market in the short term.
The meeting comes amid strong expectations in the market that the CBE will keep the interest rate unchanged, after two consecutive cuts since the beginning of the year.
Up until the beginning of the week, experts and analysts mostly leaned towards the CBE trimming the interest rates. But the latest revealed inflation figures and what CBE Governor Tarek Amer has said about the internal and external factors that the CBE considers in its decision amended the expectations and put them more in favour of maintaining the rates.
Amer said earlier this week that the MPC was considering a number of global factors, such as the increase in oil prices and US interest rates, as well as US sanctions imposed on Iran.
On Thursday, the CBE disclosed its key annual inflation scored 11.6% in April, up from 11.59% in March, while core monthly inflation registered 1.1% in April, up from 0.7% in March.
Meanwhile, the consumer price index (CPI) prepared by the Central Agency for Public Mobilisation and Statistics (CAPMAS) resisted 1.5% in April, up from 0.99% in March, while the annual inflation rate marked 13.1% in April, versus 13.32% in March.
In a previous statement, the CBE said it was pursuing a monetary policy that prioritises low inflation rates in order to achieve sustained economic growth.
It added that it began to gradually shift to the inflation targeting system by setting the target annual inflation rate in the last quarter of 2018 at 13% ±3 percent, then single digits, noting that, in pursuit of that goal, it will use all available monetary policy tools in a proactive manner and based on a comprehensive analysis of all local and international variables.
For his part, Mohamed Abdel Aal, a banking expert, predicted that the CBE will maintain the interest rates on deposits and lending at the MPC meeting on Thursday.
He explained that there are several reasons for the CBE to keep the rates unchanged, most notably that further cuts will negatively impact the household sector, which is a key social issue at present, given the price hikes.
He added that continued interest rate cuts may also negatively affect the volume of demand for Egyptian treasury bonds and bills, which are important sources of funding for the budget deficit, until other fiscal policies implemented by the state reduce the deficit, including cheaper external borrowing.
“The interest rate cut may negatively affect the attractiveness of the Egyptian pound, then the exchange rate, the flow of foreign direct and indirect investment, and investment in public debt securities and the stock market, especially with the raising of the interest rate on the dollar in global markets,” Abdel Aal said.
He pointed out that there is a wave of price rises in commodities worldwide, especially oil prices, which will bring a new inflationary wave accompanied by a series of price rises in the domestic market that may affect the composition of inflation, which may also push the CBE to stabilise its interest rates.