In a bold move in line with market expectations, Central Bank of Egypt (CBE) decided to cut its basic interest rates by 1.5% on Thursday. Slashing interest rates to 14.25% for deposit, 15.25% for lending, 14.75% for the credit and discount rate and the rate of the main operation.
In reaction, Hisham Okasha, Chairperson of the National Bank of Egypt and Mohamed El-Etreby, Chairperson of Banque Misr, told the Daily News Egypt that the decision that the CBE’s decision to cut deposit and lending rates by 1.5% will boost investments and reduce the state’s budget deficit.
Accordingly, both banks would hold meetings on Sunday, to discuss the adjustments on their certificate deposits.
In regards to the effect on debt instruments, Beltone Financial said in a research note that they still believe Egyptian treasury yields will revert to the 16-17% range. The note added that yields priced in an expected easing cycle returning to the 17% territory in recent auctions.
“Among the emerging markets with comparable yields, Egypt still stands out with its improved macro indicators and +5% GDP growth,” the note stressed.
Finally, the note concluded that there is room for another 100bps cut in 4Q19 and 300bps cut in 2020, similarly, Radwa El-Swaify, head of research at Pharos Holding investment bank, said that the CBE’s rate cut of 150 basis points fell within Pharos’ forecast range of 2% to 3% in 2019, adding that she forecast further 1.5% cut before year’s end.
Moreover, Mona Bedeir, senior economist at Prime Research, said that Prime Research initial forecast that signalled the favourable inflation outlook is providing a larger room for CBE to cut its rate by more than what the market has been anticipating.
On the investment front, recent interest rates’ cut will encourage local businesspersons to inject more money into the market, Mohsen Adel, former CEO of the General Authority For Investment and free zones, told Daily News Egypt, noting that there are several local and international factors that CBE to ease its monetary policy.
“Interest rates cut is a global direction to promote the world’s economic growth and eliminate the fears of the growth’ slowdown. Egypt’s private sector also needs more attention to inject new investments in the country,” Adel explained.
Likewise, Fakhry El-Fekki, board member of the CBE, told the Daily News Egypt that the recent interest rate cut will positively reflect on the businesspersons’ decisions to raise the production capacity of their factories, adding that the businesses will get credit with lower cost and will inject new investments in the medium term.
The same view was adopted by Ambassador Gamal Bayoumi, secretary-general of the Arab Investors Union (AIU), who said that the Egyptian market hopes to get back to the previous average of interest rates of 6%.
In regards to the impact on the stock exchange, Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes, said that the interest rate cut by 1.5% will encourage companies to expand in the coming period, which will reflect positively on the performance of companies and thus the market value of their shares on the EGX.
Similarly, Amr El Alfy, head of research at Shuaa Securities, believes that the EGX30 index would be positively affected by the rate cut this month. He explained that if we take historical guidance after cutting interest rates by 100 bps, the average return is always positive in the performance of the EGX30 index by 9-10% within a month after the reduction.