All expectations headed towards one irreplaceable path, for the Central Bank of Egypt to take a decision today to increase interest rates by 200 points.
The Central Bank of Egypt is facing a real dilemma, as the foreign reserves that the CBE considers unholy, and the depreciation of the local currency coincided with a remarkable increase in inflation rates globally and internally.
This coincided with the Egyptian Prime Minister’s assertion a few days ago that interest rates would rise in the country, while the Governor of the Egyptian Central Bank, Tarek Amer, confirmed that the bank would use all available means to curb high inflation in the country.
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It seems that the Egyptian pound is holding its breath hours before the fateful decision, as it paves the way for stability in the transactions of local banks against the US dollar.
The exchange rate of the dollar against the Egyptian pound has stabilized in national and private banks after a wave of long rises following the sharp decline on March 21.
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The Egyptian pound had lost nearly 18% of its value, starting on March 21, following an emergency meeting of the Egyptian Central Bank, during which it announced a 100-point cut in interest rates.
The exchange rate of the dollar against the pound in the largest national banks of Al-Ahly Al-Masry recorded a price of 18.23 pounds for purchase, while it recorded a price of 18.29 pounds for sale.
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The Egyptian pound fell after the exceptional interest decision on November 21 to its lowest level since the float decision in November 2016, a drop that the Central Governor described as a corrective descent.
The Central Bank of Egypt faces the risks of rising inflation to levels that exceeded the expectations of the bank, and on the other hand, it seeks to stop the exodus of foreign investments in government debt securities outside the country.
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Tarek Amer, Governor of the Central Bank of Egypt, said that the decisions taken in March and April contributed to the 30% increase in foreign exchange revenues.
Al-Ahly and Egypt banks offered a certificate with an interest rate of 18% for a year. Following this decision, the exchange rate of the pound against the dollar fell by 17% within two days of the decision.
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Is the pound rising?
What increased the sensitivity of the interest rate decision on the Egyptian pound was fears of a new wave of declines, such as what happened during the previous meeting, especially with the rise of the dollar index globally and the Fed’s pledge to raise interest rates to counter inflation.
The Central Governor believes that the Egyptian pound will re-rise against the dollar, as he pledged yesterday, Wednesday, that the pound will be more profitable against other currencies in the medium term.
Meanwhile, Central Bank of Egypt Governor Tarek Amer (EGX:AMER) confirmed that the central bank will not hesitate to take all necessary measures to curb inflation in the future, and Amer added that the central bank took measures during the months of March and April with the aim of achieving stability in foreign exchange.
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And after an accelerated decline during the last period in the country’s cash reserves following the outbreak of the war in Russia and Ukraine, where the cash reserves fell by more than 7 billion dollars.
The reserve drain stopped after urgent intervention by some Gulf countries, which announced the injection and deposit of a total of 22 billion dollars into the Egyptian economy, coinciding with the increase in Egyptian remittances abroad.
The Governor of the Central Bank of Egypt said that the levels of liquidity in the Egyptian banking system are high and there is no crisis in it.
Amer added that liquidity in foreign currencies amounts to 67% of the total assets of the banking system from these currencies, and liquidity in local currency is 45%.
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Adjust the exchange rate
Tariq Amer said that during the Corona crisis, we intervened with international reserves and decided to migrate from the flexibility of the exchange rate to maintain it so that society would not suffer a price shock.
He added that maintaining the exchange rate contributed during the past year to alleviating the currency shock on public and private sector companies and the budget, and Amer said that during the first 3 months of the Corona crisis, Egypt’s cash reserves declined by a value of $9.5 billion.
Amer said that the monetary policy objectives must be adapted to serve the economy and the citizen, pointing to the exit of huge funds from indirect investments worth 15 billion dollars in three months and the reserves were used, which led to its decline to 37 billion dollars.
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The markets are awaiting, in the coming hours, today, Thursday, the Central Bank of Egypt’s meeting, after the Central Bank of Egypt suddenly raised interest rates by 1% in an exceptional meeting on Monday, March 21, to reach 9.25% for deposits and 10.25% for lending.
This comes while the annual inflation rate for the whole of the Republic rose last April, to reach 14.9%, compared to 12.1% in the previous March, and HC Bank expected that the Central Bank of Egypt would raise interest rates by 200 basis points at its next meeting scheduled for next Thursday, May 19 .
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The bank said that in terms of the value of the Egyptian pound, we believe that the risks are on the downside because we believe that the currency rate will be determined by market dynamics.
Bloom Egypt for Financial Investments said that inflation figures rose sharply in the month of April and exceeded the expectations of all analysts, so we expect an increase in the interest rate by at least 1% to 2% to control inflation.
Al-Ahly Pharos expected that, given the higher than expected inflation reading in April, and the expected gradual increase in the inflation reading over the next few months, we expect the number to reach its peak of 14-15% in August, we expect to raise interest rates in the range of 2%
While Beltone Financial expected the Central Bank of Egypt to raise interest rates between 50-100 basis points, as it sees the country’s need to maintain investment attractiveness in the fixed income market, especially with the rise in interest rates globally.
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