The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) is anticipated to convene on Thursday — for the fourth time in 2021 — to review the key interest rates in light of the domestic and global economic updates, amid expectations that the CBE will not introduce new cuts.
Over four consecutive meetings (from December 2020 through April 2021), the MPC decided to maintain the key interest rates at 8.25 percent, 9.25 percent, 8.75 percent, and 8.75 percent for the overnight deposit rate, overnight lending rate, the rate of the main operation, and the discount rate, respectively.
Banking expert and Manager at the risk management sector in Banque Misr Ahmed Shawky told Ahram Online that the expected scenario is that the current interest rates will be kept.
Shawky attributed his expectation to the COVID-19 crisis — which is still ongoing — its related challenges, and the uncertainty status it imposes.
He also said that despite the headline inflation rate accelerating to 4.8 percent, it remains in the range the CBE set at 7 percent (±2 percentage points), adding that Egypt’s real GDP indicates that it is on its way to rebound and recover.
“In light of all these actors, the CBE is not expected to introduce new cuts to the interest rates. The CBE needs to preserve both its monetary easing policy’s gains and the foreign investors that Egypt has managed to attract to invest in the country’s debt instruments. It eyes to attract more foreign investors in all sectors looking forward as well,” Shawky illustrated.
Egypt’s annual headline inflation rate accelerated to 4.9 percent in May, up from 4.4 percent in April, owing to the recent preventative measures against the coronavirus and the increase in prices of vegetables and fresh fruits, the CBE announced on Monday.
Egypt’s monthly headline inflation also rose in May to 0.7 percent, compared to 0 percent in May 2020.
Meanwhile, Radwa El-Swaify of Pharos Securities Brokerage expected the same scenario.
“Since inflation will start edging up gradually starting May 2021 and until September 2021, mainly because of the base effect on the numbers, the increase in global commodity prices, higher raw material prices, higher fruits and vegetables prices in the summer season, the CBE is expected to keep the rates unchanged, at least until October 2021. Urban Inflation might gradually rise from 4.1 percent (Y-o-Y) in April to around 5.5 percent in September,” El-Swaify told Ahram Online.
She added that in light of the recent inflation reading, the slow rollout of the vaccine — which slows down global tourism recovery — and the pace of the economic recovery in the developed world, Egypt still needs to maintain its competitiveness as a destination for foreign portfolio investments, which also means that it needs to maintain rates at least until the fourth quarter of 2021.
On the other hand, Fitch Ratings perceives that introducing an up to 1.5 percent (150 bps) cut to the CBE’s interest rates will be good for banks’ net interest margins (NIMs) average.
In its insights, released on Sunday, Fitch noted that interest income is highly dependent on sovereign yields, which represent about 65 percent of Egypt’s banking sector’s total interest income.
Yet, the impact would vary depending on each bank’s asset pricing power, funding structure, and ability to re-price liabilities downwards, according to Fitch.
On Monday, Egypt’s House of Representatives approved the country’s FY2021/2022 budget — which will be rolled out by 1 July — with a total value of EGP 2.6 trillion, the biggest in Egypt’s history.
FY2021/22 is expected to witness an increase in real GDP growth to reach 5.4 percent after experiencing a slowdown in FY2020/21 estimated at 2.8 percent, in light of the incremental recovery of Egypt’s economy from the COVID-19 pandemic and its associated harsh impacts.