CBE keeps interest rates unchanged for 3rd time in 2018

CAIRO – 16 August 2018: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) kept interest rates unchanged Thursday for the third time this year, setting the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.

During June’s meeting, MPC also kept the interest rates unchanged after lowering them twice earlier this year by 1 percent each time.

In February and March, CBE cut the interest rates by 200 basis points, and kept the rates unchanged during May and June meetings at 16.75 percent and 17.75 percent for the overnight deposit rate and the overnight lending rate, respectively.

By keeping the interest rate unchanged, MPC met the expectations of the investment banks and economic research organizations.

CBE expected to keep interest rates Thursday

CAIRO - 16 August 2018: The Central Bank of Egypt is expected to keep interest rates unchanged during Thursday's Monetary Policy Committee (MPC) meeting. Despite the inflationary pressure which came in June as a result of implementing the economic program coinciding with Islamic events, Ramadan and Eid Al-Fitr, investment banks see that the MPC will keep the rates at the current levels.

Despite the inflationary pressure which came in June as a result of implementing the economic program coinciding with Islamic events, Ramadan and Eid Al-Fitr, investment banks saw that the MPC would keep the rates at the current levels.

The Cabinet announced on June 16 lowering the fuel subsidy to 25 percent, after cutting electricity subsidies on June 12, raising prices by an average of 26 percent in the fiscal year of 2018/2019 that began in July.

The Central Agency for Public Mobilization and Statistics (CAPMAS) announced that Egypt’s annual consumer price inflation slipped to 13 percent in July 2018, compared to 34.2 percent in the same month of 2017.

On a monthly basis, inflation increased 2.5 percent in July, compared to the previous month, to record 289.9 points, CAPMAS stated.

Pharos Research expected CBE to keep interest rates at their current levels during their August meeting.

Pharos attributed this expectation to the acceleration of inflation during August and September due to seasonal factors and fiscal reform measures, as well as the recent low rate of foreign ownership of treasury bills.

HC Securities & Investment agreed with Pharos' forecasting that the interest rate will be unchanged during August meeting.

“We believe the MPC will likely keep interest rates unchanged at its upcoming meeting, expecting monthly inflation to start normalizing in August to 1 percent on the phasing out of first and second rounds' effects of fuel, electricity, and tax reforms, resulting in a nearly stable yearly inflation in August,” Chief Economist at HC, Sara Saada, said.

HC expected earlier interest rates to take almost two years to return to pre-flotation levels.

Egypt floated its currency in November 2016, losing 50 percent of its value as a part of an economic reform program.

Egypt embarked on a bold economic reform program that includes floating its currency, cutting energy subsidies and introducing new taxes to cut the budget deficit.

Also, Vice president and head of MENA strategy for EFG Hermes Mohamad al-Hajj told media outlets: “The outlook for interest rate cuts in the short-to-medium term, over the next 12 months, is uncertain. It’s unlikely that we’ll see an interest rate cut coming out of Egypt in the current environment, given where oil prices are, what’s happening with the rest of emerging markets, the rising dollar etc.”

Beltone Financial came in line with other investment banks and research organizations as well, affirming that CBE will keep the interest rates unchanged during August meeting and the upcoming three meetings in 2018 as returns rose recently to 19.4 percent, which keeps the Egyptian fixed income market attractive among emerging markets.

"Inflation may rise a little further in July on the back of electricity price hikes that came into effect at the start of this month,” Capital Economics said in a report. “Even so, we doubt that higher inflation will prompt the Central Bank of Egypt (CBE) to raise interest rates at its meeting in mid-August."

“We expect another 350bp of rate cuts, taking the overnight deposit rate to 13.25 percent by the end of 2018,” according to Capital Economics.