The Central Bank of Egypt (CBE) will be the centre of attention as the 26 September meeting approaches, which is expected to see an interest rate cut of 150 basis points (bps) as economic indicators improve.
The research centres unanimously agreed that the CBE will cut interest rates at its next meeting, while their expectations on the rate of cut varied between 0.5% and 1.5%.
Mohamed Abu Basha, head of research at EFG-Hermes, predicted that the CBE will cut interest rates by only 0.5%, so that bonds and bills would not lose their appeal, especially in light of tensions in global financial markets. However, inflation is likely to slow further in the coming months to record between 4% and 5%, before ending the year at levels between 8 and 9%.
He explained that investors should adopt the expected range for the end of the year when preparing their forecasts for future monetary policy moves, especially since the period between August and October is affected by the impact of the high base period, and that the CBE stressed in its recent statement to take decisions based on expectations of future inflation.
Radwa El-Swaify, head of research at Pharos Holding, predicted that the CBE will cut interest rates by 1.5% at its next meeting, then continue further cuts in 2020.
Mona Bedair, a macroeconomic analyst at Prime Investment Bank, said that falling interest rates in the global and domestic markets gave the CBE a golden opportunity to cut interest rates.
She pointed out that Turkey cut interest rates by 3.25%, and Egypt has better components and indicators on the economic level, in light of low inflation and stability of the real return on Treasury bills and bonds at the highest levels since the float.
Abou Bakr Emam, head of the research sector at Sigma Investment Bank, believes that the CBE will move to new interest rate cuts by about 1.5% during the remainder of this year.
He added that the decline in inflation is pushing the CBE to complete the policy of monetary easing that started in recent months, expecting a reduction of 0.5% at the Monetary Policy Committee meeting scheduled for next Thursday, then take a similar decision in November by 1%, due to the effects of base year.
Esraa Ahmed, a macroeconomic analyst at Shuaa Capital, said the low interest rate on government debt securities reflects expectations of a rate cut and supports the CBE position in the continuation of the easing of policy, especially after reaching inflation rates’ target.
It is likely that the CBE will cut interest rates between 0.5% and 1% amid the global environment supportive of monetary easing since the United States Federal Reserve and a number of central banks, including Turkey, significantly cut their interest rates, she said.
Although it is expected that the impact of the favourable base year will not last forever, and that inflation readings will rise at different times of the year, it is likely that the new cut will not affect the scope of the CBE’s inflation targets to reach between 6 and 12% by the end of the fourth quarter of 2020.
