Monday, April 12, 2021
Books – Mustafa Eid:
4 investment banks expected that the Central Bank of Egypt would keep interest rates unchanged during the next meeting of the bank’s monetary policy committee.
The Central Bank’s Monetary Policy Committee will hold its third meeting this year on Thursday, April 29, after fixing interest rates during the previous meeting on March 19.
The central bank had cut interest rates by a total of 4% during 2020, including 3% in one go in March of last year as a pre-emptive measure to face the repercussions of the emerging Corona virus pandemic.
Noman Khaled expected the central bank to fix interest rates during the next meeting of the monetary policy committee at the end of this month.
Radwa Al-Swaify, Head of Research Department at Pharos Investment Bank, Muhammad Abu Basha, Vice President of Research at Hermes Investment Bank, and also a report by the Research Department at Beltone Investment Bank agreed with Numan Khaled’s expectations that the Central Bank would keep interest rates unchanged at the next meeting of the committee.
Numan Khaled told Masrawy that the high yield on American bonds still poses a threat to foreign investments in debt instruments in all emerging markets in general, even if Egypt is reassured to a large extent that there is no strong exit from these investments due to factors related to Egypt in particular, including the stability of exchange rates. However, hedging is better and hence fixing interest.
At the same time, he added, inflation will start to rise over time, reaching levels above 5%, and therefore, at the present time, there is no reason for the central bank to cut interest and also at the same time there is no reason to raise it.
The annual inflation rate for the entire republic during the month of March was recorded at 4.8% compared to 4.9% in February, while the monthly inflation rate was 0.6% in March compared to 0.1% in February, according to the data of the Central Agency for Public Mobilization and Statistics.
In cities, the annual inflation rate in March reached 4.5%, which is the same level recorded in February, while the monthly rate was 0.6% in March compared to 0.2% in February.
The central bank sets a new target for the inflation rate at the level of 7% (plus or minus 2%) on average during the fourth quarter of 2022.
Muhammad Abu Basha told Masrawy that he supports the central bank’s tendency to fix interest rates, to monitor the possibility of global interest rate hikes, even if they have stabilized recently, in addition to recent increases in food commodity prices.
In general, he added, circumstances had not changed much from the last meeting.
We see that the Central Bank of Egypt has more than one reason for not moving interest rates from the current level at the meeting scheduled for April 29th, provided that it assesses the possibility of any possible interest rate cut later this year, Radwa Al-Swaify told Masrawy.
She added that these reasons include unstable conditions in the US Treasury instruments market and the possibility of significantly moving interest rates and its potential consequences (including withdrawing investments from emerging debt and capital markets), as well as the central bank’s efforts to control long-term inflation paths instead of recording declining and unsustainable readings. Short-term.
In a report by Beltone Investment Bank today, Monday, the Research Department said that “the development on the side of annual general inflation readings can support a reduction in interest rates, as we expect inflation to stabilize below the target range by the Central Bank of Egypt at 7% (± 2%) on average. Until the fourth quarter of 2022. “
And she continued, “However, with the stability of food commodity prices on a monthly basis after the decline in the past two months, which coincided with a significant increase in global commodity prices as well as the rise in oil prices, we expect to maintain interest rates during the next Monetary Policy Committee meeting on April 29th.” .
The Beltone Research Department added in its report: “We believe that the need to maintain the attractiveness of investment in the fixed income market, especially with rising interest rates globally, is putting pressure on emerging market flows, which supports our vision.”
Numan Khaled expected that the earliest opportunity for the central bank to cut interest rates would most likely be in the last quarter of 2021, indicating that if Egypt were included in the MSCI index of bonds in emerging countries in local currencies in the second half of the year, this would give the central bank a greater opportunity to lower rates. Benefit.
He explained that the inclusion of Egypt in this index would contribute to the entry of large sums of money into Egypt from debt instruments, thus lowering interest on them, and also may lead to an increase in the exchange rate of the pound against the dollar, which would provide an appropriate environment for the central bank to cut interest.
The American investment bank JP Morgan confirmed, yesterday, that it is studying the inclusion of Egypt in its index of government bonds for emerging markets, according to Reuters.
This listing may secure new financial flows of up to $ 4.8 billion and support the exchange rate of the pound against the dollar by about 5%, according to statements by the economist at Rand Commercial Bank, Neville Mandimica, quoted by Reuters a few days ago.