EU keeps UK waiting on Brexit delay, Johnson gears for an election    African continent is one of the main markets attracting investment and trade    EU lawmakers reject Turkey's 'safe zone' in Syria, eye sanctions steps    Putin aims to boost Moscow's clout with Russia-Africa summit    River reaches Copa Libertadores final despite loss at Boca    Germany may grant UK short Brexit extension to allow smooth ratification    Guardiola backs 'extraordinary' Sterling to keep on improving    Manchester United ban supporter for alleged racist abuse in Liverpool draw    Cairo to host Munich Security Conference follow-up meeting this week    Egypt's Investment Minister praises China's Belt, Road initiative    Gold moves sideways as investors seek clarity on Brexit, trade war    Oil drops after data shows bigger-than-expected build in U.S. inventory    European markets mostly lower as Brexit hits another roadblock    Deploying all tools for GERD    Selling water and electricity to Egypt    ‘Uncovering the potential for cooperation'    Cairo drowning    Taxes on the bourse    Liverpool's Egyptian star Mohamed Salah among 2019 Ballon d'Or nominees    Egypt's parliament endorses €205 mln loan deal with EBRD to upgrade Cairo Metro's first line    Egypt's train fares to not increase until developing services – minister    Liverpool's Egyptian winger Salah ruled out of Manchester United clash    WHO hails 'triumph' as Ebola vaccine gets European green light    Current and ex smokers may lower lung cancer risk with exercise    France's President Macron receives Egypt's Coptic Pope Tawadros II at Elysee    After a young pupil dies of meningitis in Egypt, tips to help prevention    Grand Nile Tower Arts & Cultural Centre launches second round    Egypt's coach Hossam El-Badry satisfied with winning start despite technical problems    Luxor's new discoveries    Moroccan film Nomades scoops awards in Alexandria Film Festival    Six authors vie for Booker prize 2019, Atwood in the lead    In Photos: A sneak peek into rehearsals for the Cleopatra ballet world premiere    Sisi: army engaged in attrition phase against terrorism in Sinai since 2013    Sisi, Ethiopia's PM to meet in Moscow to discuss GERD issue    Sisi, Ethiopia's PM agree to overcome obstacles in Nile dam talks    Farwell to Egyptian comic actor Talaat Zakaria    Court sentences six to death, 41 to lifetime imprisonment violence related case    Trump says he would release Mideast peace plan after Israeli elections    ACWA Power compares 3 bids to supply production units for Luxor power station    What do you know about gold alloying?    NBE announces EGP 2.5m prizes for handball youth teams for their world achievements    Jennifer Lopez evokes Egyptian outrage post her North Coast performance    Al-Sisi honours Egypt's scholars on Science Day    IS claims responsibility for suicide bombing killing 63 in Afghan wedding    Political parties gear up for parliamentary, senate, local elections    Unprecedented Glory: Egypt win Men's U-19 World Handball Championship    12th National Egyptian Theatre Festival fuel up public theatre art scene    Ministry of Environment has a plan for "black clouds season"    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.





Interest rates expected to drop further in Egypt throughout 2019
Published in Ahram Online on 21 - 02 - 2019

The Central Bank of Egypt (CBE) surprised pundits by cutting interest rates by one per cent at its Monetary Policy Committee (MPC) meeting last week, the first cut in almost a year.
The CBE cut the overnight deposit and overnight lending rate by one per cent to 15.75 per cent and 16.75 per cent, respectively. The discount rate was also cut by one per cent to 16.25 per cent.
The move came as a surprise to many economists who expected the CBE to leave rates unchanged because the headline inflation rate had increased in January, standing at 12.7 per cent, compared to 12 per cent in December 2018.
Some economists expected the CBE to resume its easing cycle of reducing interest rates in the second half of 2019.
However, despite the hike in the inflation rate in January “due to the reversal of a transitory supply shock… it remains within the CBE's target of 13 per cent plus or minus three for the first half of 2019,” the CBE said in a statement.
Besides inflation, there were also a number of other factors that influenced the CBE's decision.
The CBE referred to positive macroeconomic indicators, such as an increase in GDP growth to reach 5.5 per cent in the fourth quarter of 2018, compared to 5.3 per cent in the third quarter of the same year, and a drop in the unemployment rate from 10 per cent to 8.9 per cent, its lowest level since December 2010.
Lower interest rates boost growth as they make the cost of borrowing for businesses lower, a fact that helps in creating job opportunities. The bank further said that incoming data continued to confirm the moderation of underlying inflationary pressures.
According to a CBE statement, the decision to cut interest rates was consistent with tight real monetary conditions and with achieving the inflation target of nine per cent plus or minus three in the fourth quarter of 2020 and price stability over the medium term.
While the CBE's move to resume the easing cycle in the first quarter of 2019 surprised many economists as coming earlier than expected, some had anticipated the cut.
Radwa Al-Swaify, head of research at local investment bank Pharos Holding, said that the interest rate cut was not a surprise given the increased foreign investment in Egyptian debt instruments, the drop in inflation rates, and the government's desire to encourage investment as well as reduce the burden on the state budget.
Egypt has been seeing high demand from foreign portfolio investors for the government's treasury bills.
Meanwhile, Al-Swaify also said the expected subsidy cuts by the beginning of the 2019/2020 fiscal year, which will start in July, would see the CBE holding the easing cycle as the inflation rate is expected to pick up following the recent cuts.
Egypt is supposed to lift fuel subsidies completely by mid-2019. Bloomberg Economics, a consultancy firm, estimates that the complete removal of the fuel subsidies could increase inflation in Egypt by as much as two per cent, depending on international oil prices.
“Inflation is expected to increase month-on-month, but on an annual basis it will not rise because of the base effect,” Al-Swaify told Al-Ahram Weekly.
She said she expected interest rates to be cut by an accumulative four per cent in 2019.
Despite the fact that the one per cent cut in interest rates would be positive for the business climate, Al-Swaify said that a whole four per cent cut was needed to feel any positive impact on investment in the country.
In a note, research firm Capital Economics agreed with Al-Swaify, saying that the sharp decline in inflation over recent months and a pick-up in capital inflows were key factors that had driven the CBE's decision to cut interest rates last week.
“Since the start of this year, an influx of foreign investment has supported a 15 per cent rise in the stock market and pushed down local currency bond yields,” Capital Economics said.
The firm expects inflation to fall further, prompting additional rate cuts at the CBE's upcoming MPC meetings, but the bank might also pause around the middle of the year in anticipation of fresh subsidy cuts, Capital Economics said.
It anticipated that the overnight deposit rate would end 2019 at 13.75 per cent.
The CBE's decision to cut the rates aimed to serve two main goals, according to investment bank Prime Holding.
These included sending a message of calm to the markets paving the way for the government to launch its long-awaited initial public offering (IPO) programme and supporting fiscal policy to achieve its targets by curtailing the ballooning interest payments on public debt, Prime Holding said in a report.
The CBE has left interest rates unchanged since May 2018 due to inflationary pressures that resulted from subsidy cuts in 2017/2018. The overnight deposit and lending rates had earlier been left at 16.75 per cent and 17.75 per cent, respectively.
*A version of this article appears in print in the 21 February, 2019 edition of Al-Ahram Weekly under the headline: Cut in interest rates


Clic here to read the story from its source.