Economists expected that the Central Bank of Egypt would resume its monetary tightening policy by raising interest rates during its meeting next Thursday, in order to curb inflation and support the Egyptian pound.
The Central Bank fixed interest rates in the last two meetings during the months of August and June, after raising them in May and March by a total of 300 basis points, to reach at the present time 11.25 percent for deposits, and 12.25 percent for lending.
Muhammad Abu Basha, chief economist at EFG Hermes, told Iqtisad Al-Iqtissad, "Sky News Arabia," an increase in interest rates at next Thursday's meeting by 1%.
But Hani Genena, an economist and lecturer at the American University in Cairo, expects a larger interest rate increase of at least 2 percent, with the aim of curbing inflation and reducing dollarization with the decline of the pound.
The Egyptian pound has witnessed an accelerating decline in recent weeks, amid experts’ expectations that the Central Bank will continue to gradually reduce it until it reaches levels ranging between 21 and 22 pounds to the dollar, in order to ensure the flexibility of the exchange rate required by the International Monetary Fund, with which Egypt seeks to sign an imminent agreement with it from order to obtain a new loan.
Since last March, the pound exchange rate has fallen by more than 23 percent, after it allowed a 14 percent devaluation of the pound on March 21.
The inflation rate in Egyptian cities accelerated to 14.6 percent last August, at its highest level in nearly 4 years, as Egypt is witnessing an inflationary wave in recent months, reflecting the increase in food and petroleum prices, against the background of the decline in the price of the pound and the rise in the cost of import, after the crisis. Ukrainian and oil jump.
Noaman Khaled, a macroeconomic analyst at Arqaam Capital, said in statements to "Eqtisadiah" Sky News Arabia, that he expects an increase in interest rates by about 2 percent in the next meeting.
Khaled believes that the Central Bank of Egypt preferred not to use the “interest-rise paper” in the last two meetings so that it could use it at the appropriate time in conjunction with its move to reduce the pound and the approaching signing of the International Monetary Fund agreement, and what may be accompanied by measures that may lead to inflationary pressures.
Economists believe that the Central Bank of Egypt may also be forced to raise interest rates in order to keep pace with the global monetary tightening, as the US Federal Reserve is expected to raise interest rates on Wednesday, by about 75 basis points for the third time in a row, after the inflation rate rose More than expectations.
unconventional path
In the opposite direction, Radwa Al-Swaify, head of research at the National Pharos Investment Bank of Egypt, told "Sky News Arabia" that she hopes that "the central bank will take an unconventional path, and fix the interest rate, so as not to put pressure on the state's general budget, Especially after global commodity prices have relatively calmed down and inflation is on a specific path, which is expected to begin to recede from April 2023.
"Therefore, fixing interest rates is with the aim of supporting the production wheel and supporting the state's general budget... Raising interest rates at that stage gains pressure on the currency by attracting hot money, and this is the path that the state announced its reluctance to do in the future," according to Al-Suwaifi.
However, Al-Suwaifi does not rule out that the Central Bank will go to the "traditional option" by raising interest rates by 200 basis points during its next meeting, especially in the event that quick steps are taken regarding the flexibility of exchange rates before the date of the meeting.
In the same direction, Esraa Ahmed, a macroeconomic analyst at Al-Ahly Pharos Investment Bank, said that although the real interest rate in Egypt is still negative and at a high rate, the best thing at the moment is to stabilize interest rates.
"Inflation rates are not expected to witness a significant increase in the coming period, especially since most of the shock caused by external data has already been absorbed, in addition to the effect of the foundation may be a favorable factor, especially at the beginning of next year," according to what the economic analyst said.
Ahmed added: "Most importantly, the external variables with regard to oil prices as well as the food price index may indicate that the worst with regard to "importing inflation" has passed, which may be a positive indicator of the inflation pattern during the coming period."