CBE expected to hold steady interest rates on Thursday

The increase of interest rates will not decrease inflation because it did not result from an increase in supply, says Youssef

A number of analysts predicted that the Monetary Policy Committee, affiliated with the Central Bank of Egypt (CBE), will hold steady the basic yield in the CBE during its second meeting of the year on Thursday.
The basic yield in the CBE is the leading indicator for the direction of interest rates on the Egyptian pound in the local market.
The Monetary Policy Committee decided at its first meeting held on 16 February to hold steady the basic prices, as the deposit rate reached 14.75%, the lending rate reached 15.75%, and the price of credit and debit reached 15.25%.
Tamer Youssef, head of the treasury sector at one of the foreign banks operating in the domestic market, expected that the Monetary Policy Committee will make a similar decision at its meeting on Thursday.
Youssef pointed out that the increase of interest rates will not limit the inflation, because it did not result from an increase in supply, but from the economic reform measures taken by the government—mainly the restructuring of subsidies and the liberation of the exchange rate.
The Monetary Policy Committee announced in its last meeting that the successive hikes witnessed by the general and basic index inflation rates from November and January, comes as a result of temporary factors, including the increase in commodity prices, expecting that these impacts will end in coming periods.
On Monday, the governor of the CBE, Tarek Amer, predicted that the inflation rate will decrease gradually starting this month.
According to Youssef, the CBE is expected to maintain the current interest rate on the pound until the end of the first half of this year, in light of the bank's efforts to adjust the exchange market and attract foreign investments for debt instruments. He added that the interest rate is likely to decline starting from July 2017 to stimulate investment.
In a poll conducted by Reuters, 14 analysts out of 15 expected that the Monetary Policy Committee will ignore the recent increase in the inflation rate and maintain the basic yields in the CBE for the fourth time in a row since it was increased by 3% in November 2016.
The CBE announced in mid-March that the monthly rate of the basic inflation recorded 5% in January 2017, compared to 4.35% in December 2016. The annual basic inflation rate reached 30.86% in January 2017, compared to 25.86% in December 2016.