The research department at HC Securities and Investment issued its expectations for the upcoming meeting of the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) next Thursday, as it expected to raise the basic interest rate by 2% in order to confront high inflation.
“We expect the MPC to raise the interest rates by 200 basis points in order to confront inflation, and to attract inflows benefiting from the price differences,” said Heba Mounir, analyst of the banking sector and macroeconomics at the company.
She indicated that inflation accelerated in November, as it rose by 2.3% on a monthly basis and 18.7% on an annual basis, exceeding the company’s estimates of 16.5%, pointing out that this acceleration, along with the current shortage in foreign capital inflows, led to the company’s expectation of recording an annual inflation rate of 19.1% in December.
She added: “The average return on the 12-month treasury bills after tax reached 15.99%, accounting for a tax rate of 15% for US and European investors, in the offering held on December 8 with a bid-to-cover ratio of 3.20 times, indicating the need to raise returns.”
She explained that Egyptian treasury bills for the 12-month period currently offer a real return of negative 0.1%, and calculating the expected increase of 200 basis points in the interest rate at the Central Bank will attract flows benefiting from the price differences.
It is noteworthy that the Monetary Policy Committee of the Central Bank of Egypt had decided, in an extraordinary meeting on 27 October to raise the interest rate by 200 basis points, and to move to a durable flexible exchange rate system, leaving the forces of supply and demand to determine the value of the Egyptian pound against a basket of other foreign currencies.
Accordingly, this led to a rise in interest rates in Egypt in 2022 by 500 basis points, coinciding with the Federal Reserve’s interest rate increase by a total of 425 basis points from the beginning of the year until last Thursday.
