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CBE to decide on key interest rates Thursday for last time in FY2023/24

This is amid expectations that it will maintain the current interest rates as inflation rates have started to take a downward path the last 2 months.
23.05.24 | Source: Ahram Online

In March and April, Egypt’s headline annual inflation declined to 33.3 percent and 32.5 percent from 35.7 percent recorded in February, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) readings.  

Moreover, the CBE’s calculations show that core inflation diminished in March and April by 33.6 percent and 31.8 percent from 35.1 percent in February.

Meanwhile, the prices of some commodities have started to decline over the past few months, particularly after the foreign exchange (FX) inflows entered the market and contributed to replenishing the FX liquidity in the market, along with the release of the stacked goods in ports.

The cabinet announced this week that Egypt has received the second tranche of the $35 billion Ras El-Hekma deal, signed with the UAE in February, worth $14 billion.

Additionally, the International Monetary Fund (IMF) is anticipated to complete the third review of Egypt’s extended $8 billion loan in June, unlocking over $800 billion for the country.

Egypt will receive around $1.3 billion upon completing each review, from the fourth to the eighth, till 2026.

Furthermore, the World Bank has committed $6 billion for the country; the European Union has pledged $8 billion, and the UK has announced $400 million to support Egypt’s economy against the severe impacts of the Israeli war on Gaza and tensions in the Red Sea.

In its last meeting, held in March, the CBE hiked the key interest rates by six percent (600 bps), bringing the total rises applied since the start of the year to eight percent (800 bps) and 19 percent (1900 bps) since the bank started its monetary policy tightening in March 2022.

Taming the soaring inflation is a cornerstone of the country’s Extended Fund Facility (EFF) loan deal with the IMF.

Accordingly, the CBE set a target for inflation at seven percent (±2 percent) by the fourth quarter of 2024 and five percent (±2 percent) by the fourth quarter of 2026.

Upon completing the first and second reviews under the loan programme, the IMF expected Egypt’s inflation rate to remain high over the medium term, reaching a peak of 32.5 percent in 2024 before shrinking to 25.7 percent in 2025.

HC Securities & Investment expects the CBE to keep the current key interest rates unchanged in its Thursday meeting.

“We expect the MPC to maintain the overnight deposit and lending rates at its upcoming meeting given the y-o-y deceleration in headline inflation for two consecutive months, despite m-o-m increases and improved FX liquidity after the Ras El-Hekma investment deal, following receiving around $25 billion from the UAE and the IMF,” explained Heba Monir, financial analyst and economist at HC Securities.