The Egyptian market anticipates the repercussions of the Central Bank of Egypt’s (CBE) decision to raise the Egyptian pound’s interest rates on various economic activities, the stock market, and public debt instruments.
CBE decided last Thursday to raise the basic interest rates by 1% to 19.25% for deposits, 20.25% for lending, and 19.75% for the credit and discount rate and the price of the main operation at CBE.
The Assets and Liabilities Committees (ALICO), which is responsible for determining interest levels in banks, will start holding meetings early this week to discuss the fate of interest rates on their savings and loan products, after this decision.
Interest rates on variable-return certificates and some loan products linked to CBE’s basic interest rates increased automatically after its decision.
There are many variable-return certificates in the Egyptian market, as well as a large number of variable-return loan products.
This comes as the market awaits the first reaction to the return of treasury bills after CBE’s decision, as the Central Bank is scheduled to offer, on behalf of the Ministry of Finance, on Sunday, two tenders for treasury bills worth EGP 40bn, the first at a value of EGP 22.5bn for a period of 91 days, and the second at a value of EGP 17.5bn for a period of 273 days.
The average return for the last 91-day bills tender before the decision to raise interest was 23.553%, while the average return for the last 273-day bills bid was 24.043%.
Fakhry El-Fiqqy, head of the Plan and Budget Committee in the Egyptian Parliament, had indicated earlier that raising the interest rate by 1% for one year would lead to an increase in the benefits of public debt in the general budget by EGP 28bn.
The financial statement of the Ministry of Finance on the state’s general budget for the years 2023/24 revealed that an increase in interest by 1% will raise interest payments by about EGP 70bn. This increase in interest rates expected during the fiscal year 2023/2024 will negatively affect the budget deficit.
The Ministry of Finance revealed earlier that it aims to borrow EGP 1.106tn from the local market during the first quarter of the fiscal year 2023/24, to pay previous dues for debt instruments, and finance the state’s general budget deficit.
Mohamed Abdel-Aal, a well-known banking expert, said that CBE increased interest by 1% to anticipate expected inflationary pressures during the coming period, in line with its expectations that inflation rates would reach their peak during the remaining months of this year, provided that they decline again towards the target inflation rates of 7% (±2%) on average during the fourth quarter of 2024.
Abdel-Aal added that the statement of the CBE regarding the decision to raise the interest indicates the possibility of a new increase in the interest rate this year, expecting that this increase would reach 2% over the remaining four months of the year, provided that the interest would be raised by 1% in two separate meetings.
MPC will have three meetings this year, on 21 September, 2 November, and 21 December.
According to Abdel-Aal, despite the global decline in commodity prices, CBE believes that the wave of inflation will reach its peak during the remaining months of this year, and it is likely that this will be due to Russia’s decision to withdraw from the grain export agreement from Ukraine, which may affect the increase in wheat and the prices of other commodities.
