Central Bank of Egypt's interest rate decision due next Thursday: Anticipated outcomes explored

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The Central Bank of Egypt's (CBE) Monetary Policy Committee will convene for its third meeting of 2024 on Thursday, May 23rd, to discuss the future of deposit and lending interest rates.

This time, the meeting coincides with the decline in the annual core inflation rate, which recorded 31.8% in April 2024 from 33.7% in March 2024.

Hence, the expectations of experts and bankers have varied regarding the outcome of the CBE's MPC meeting.

The banking expert Ezz El-Din Hassanein outlined to Arab Finance several indicators, including the two-month consecutive decline in inflation, that point to the CBE's intention to keep interest rates on hold at its upcoming meeting.

These indicators also include the primary objective of the CBE to curb inflation rates independently of the exchange rate, which has now become a flexible exchange rate in accordance with an agreement with the International Monetary Fund (IMF), he added.

The government Targets Controlling Inflation

Ezz El-Din clarified that inflation rates, not exchange rates, are the key factor driving the CBE’s interest rates.

He noted that the government also tends to target lowering inflation, as evidenced by Prime Minister Mostafa Madbouly's remarks about raising the supply of essential food commodities to cut prices and inflation rates, which are currently above 30%.

Economists refer to this high rate as "free fall," which has detrimental social and economic consequences, such as local currency depreciation. Therefore, both the government and the CBE are aiming to curb rates, indicating the state is on the right track.

Unchanged Interest Rates

Ezz El-Din anticipates interest rates to remain unchanged, particularly given that the CBE does not target drawing in hot money, hence, is unlikely to raise interest rates.

Türkiye, for example, competes with Egypt for luring in hot money due to its high-interest rate, which approaches 50%, making it unlikely to hike interest rates to do so.

Additionally, a contractionary policy was mandated by the IMF program, which increased the likelihood that the interest rate would stabilize during that time.

Lowering interest rates

On the other hand, banking expert Sahar El-Damaty predicts that the CBE will lower interest rates by 2% at the upcoming meeting for several reasons. These reasons include the two-month inflation drop, the decline in treasury bills (T-bills), the downward trend in certificates of deposit (CDs), and the CBE's withdrawal of liquidity of over EGP 1 trillion to control inflation.

Al-Damaty disregarded the possibility that the geopolitical issues presently raging in the region would have a major imapct on inflation. However, she stated that the disruptions in the Red Sea and the Gaza war highly affect the Suez Canal revenue, which fell by roughly 50%.

Also, she added that these tensions have an impact on tourism, yet they do not remarkably affect inflation rates.

Remarkably, since the beginning of 2024, the CBE has increased interest rates by 800 points, comprising 200 points in the February meeting and 600 points in the March meeting.