The Central Bank of Egypt (CBE) is expected to leave interest rates unchanged in its next meeting on Thursday, 16 September, according to a research note issued by HC Securities & Investment on Sunday.
Head of Macro and Financials at HC, Monette Doss, said that the inflation in Egypt is forecast to remain near the lower end of the CBE’s target range of 7% (+/-2%) in the fourth quarter (Q4) of 2022 and to average at 5.6% in Q4-21.
The US Federal Reserve’s recent announcement that interest rates are unlikely to increase in the near future has led to increasing foreign investment inflows into carry trade in emerging markets which relieved pressure on cutting interest rates in Egypt, she pointed out.
This will lead to a drop of 40 basis points (bps) in the returns on Egyptian treasury bills (T-bills) since mid-August as foreign investments in Egyptian debt instruments rose to $33.0 billion in August from $29.0 billion in May, according to S&P Global.
The recovery of foreign currency receipts from tourism resulted from the resumption of Russian flights to the Red Sea resorts has also relieved interest rate pressure on the Egyptian pound, Doss noted.
Currently, Turkey has a real yield of 5.45% on one-year T-bills, compared to the 3% real yield offered by Egyptian T-bills.
Moreover, the corporate lending rate stands at about 9.4%, while the risk-free lending rate amounts to around 10.4%.
Any cuts in interest rates in the current period would widen the gap between the corporate lending rate and the risk-free lending rate; therefore, the CBE is expected to keep interest rates on hold in its next meeting.
In August, the CBE’s Monetary Policy Committee (MPC) decided to leave interest rates on hold for the sixth time in a row.
In November 2020, the MPC cut the overnight deposit rate, the overnight lending rate, and the main operation rate by 0.5% to 8.25%, 9.25%, and 8.75%, respe
