The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold its third periodic meeting on 19 May this year to discuss the fate of the basic interest rates, which are the main indicators of the trend of the interest rates in the short term.

The committee’s meeting comes amid strong expectations of raising the interest rates at the CBE in light of the high inflation and the US Federal Reserve’s (Fed) raising its interest rates last Wednesday by 0.5% at once.

The CBE is awaiting the latest indicators of inflation in the local market, which is scheduled to be revealed on Tuesday, to determine how much the interest rates will increase.

In an extraordinary meeting held on March 21, 2022, the MPC decided to raise the basic interest rates in the CBE by 1% to reach 9.25% for deposits, 10.25% for lending, and 9.75% for the credit and discount rate and the price of the main operation of the bank.

The committee said in a statement accompanying this decision that global inflationary pressures began to re-emerge after signs of recovery of the global economy from the turmoil caused by the pandemic. This is due to the developments in the Russian-Ukrainian conflict.

On top of those pressures comes a noticeable rise in global commodity prices, supply chain disruptions, and high freight costs, in addition to the fluctuations of financial markets in emerging countries, which led to domestic inflationary pressures and increased pressure on the external balance.

The MPC pointed out that it believes in the importance of exchange rate flexibility to serve as a tool to absorb shocks and maintain Egypt’s competitiveness.

In light of these developments, and by looking at the CBE’s target inflation rate, which is 7% (±2%) on average during the fourth quarter (4Q) of 2022, it recently decided to raise the basic interest rates of the central bank by 100 basis points.

The committee stressed that achieving low and stable inflation rates in the medium term is a prerequisite for supporting the purchasing power of Egyptians and achieving high and sustainable growth rates.

It also pointed out that it will closely follow all economic developments and will not hesitate to use all its monetary tools to achieve the goal of price stability in the medium term.

The CBE said earlier that the annual rate of core inflation increased to 10.1% in March 2022, compared to 7.2% in February.

The consumer price index, which was adjusted by the CBE, recorded a monthly rate of 3.1% in March, compared to 1.2% in February.

The Central Agency for Public Mobilisation and Statistics (CAPMAS) also revealed that the consumer price inflation rate in cities increased on an annual basis to 10.5% in March 2022, compared to 8.8% in February.

Moreover, the general consumer price index for the republic reached 124.4 points for March 2022, recording an increase of 2.4% over February 2022.

CAPMAS attributed this increase to the increase in the prices of bread by 11%; meat and poultry by 7%; fish and seafood by 6.2%; dairy products, cheese, and eggs by 5%; fruits by 4.2%; oils and fats by 2.3%; tobacco products by 2%; tourism by 32.7%; and ready-made meals category by 6.1%. On the other hand, the prices of vegetables decreased by 2.9%.

It also said that the country’s annual inflation rate recorded 12.1% in March 2022, compared to 10% in February 2022, and 4.8% in March 2021.

On his part, Waleed Nagy — Vice President of the Egyptian Arab Land Bank — expects the CBE to raise the interest rates from 1% to 1.5% in its upcoming meeting.

Nagy attributed these expectations to the Fed raising the interest rate by 50 basis points in the largest rate of increase in interest in the past two decades, explaining that the rate of increase in domestic interest will depend on April’s inflation divs, which will be revealed this week.

Radwa Al-Swaify — Head of Research at Al-Ahly Pharos Securities Brokerage — expects the CBE to raise interest rates by 100 points during its meeting this month.

Al-Swaify added that the Fed’s decision was expected and would also result in raising interest rates in emerging markets by 50 basis points in the Gulf and 100 points in Egypt.

It is worth noting that this increase in interest rates is the largest hike in the US since 2000, and the Fed has announced that it intends to make other similar increases in the coming months.

Fed Chairperson Jerome Powell said that the option of raising interest rates by 50 basis points during the next two meetings of the Board will remain on the table among its members, stressing that the policy of raising interest rates will be adopted on a continuous basis.

He added that the rise in prices includes the entire economy, and therefore the policy of raising interest rates must be continuous, which suits the current economic situation.

Furthermore, Powell ruled out raising the interest rates by 75 basis points during the upcoming meetings, indicating that the best thing would be to raise them by 50 basis points at a time.

In their first reactions to the Fed’s decision, the Central Banks of Saudi Arabia, Kuwait, the UAE, Bahrain, Qatar, and Jordan also raised their interest rates.

The Saudi Central Bank said that it increased the main interest rates by 50 basis points and also raised the rate of repurchase agreements and the rate of reverse repo agreements by half a percentage point to 1.75% and 1.25%, respectively.

In the same context, the Central Bank of Kuwait decided to raise the discount rate by a quarter of a percentage point, from 1.75% to 2%, as of 5 May.

The Central Bank of the UAE also decided to increase the base interest rate by 50 basis points as of last Thursday, while keeping the rate of borrowing short-term liquidity from the Central Bank through all existing credit facilities at 50 basis points above the base rate.

Additionally, the Central Bank of Bahrain raised the basic interest rate for one-week deposits by 50 basis points to 1.75%, and the overnight deposit and lending rate by 50 basis points to 1.5% and 3%, respectively, and raised the interest rate for four-week deposits by 75 basis points to 2.5%.

The Qatar Central Bank raised the deposit interest by 50 basis points to 1.5% and the lending interest by 25 basis points to 2.75%, as well as increased the repurchase interest rate by 50 basis points to 1.75%.

The Open Market Operations Committee of the Central Bank of Jordan also decided to raise interest rates by 50 basis points on all monetary policy instruments of the bank, as of Sunday.

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