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Strong expectations that CBE's basic interest rates will be cut by 50 to 150 basis points
Published in Daily News Egypt on 26 - 09 - 2019

The Monetary Policy Committee (MPC) affiliated with the Central Bank of Egypt (CBE) will hold its regular sixth meeting of the year on Thursday to discuss the future of basic yield in the CBE, which is the leading indicator for the direction of interest rates on the Egyptian pound in the local market.
MPC ecided at its meeting on 22 August 2019 to reduce the interest rate by 150 basis points for overnight lending, overnight deposit, and CBE's main operation, to settle at 14.25%, 15.25%, and 14.75% respectively.
The committee also decided to reduce the credit and discount rate by the same percentage to 14.75%.
The CBE aims to achieve an inflation rate of 9% (±3%) during the fourth quarter of 2020, and price stability in the medium term.
Earlier this month, the CBE revealed that the annual rate of core inflation dropped to 4.9% by the end of August 2019, compared to 5.9% in July 2019
, its lowest level in more than 6 years.
The CBE said its core consumer price index, set for its part, recorded a negative monthly rate of 0.4% in August 2019, compared to a positive rate of 0.1% at the end of July 2019.
Most of the experts surveyed by Daily News Egypt forecast a rate cut on Thursday's meeting.
Mohamed Abdel Aal, a banking expert and board member of the Suez Canal Bank, said that the CBE is likely to cut interest rates again at Thursday's meeting rather than maintain the rate this time as the monetary easing cycle accelerated worldwide and the US Federal Reserve cut interest rates again by 0.25%.
The wave of global monetary easing, allow the CBE to cut interest rates further, without fear of capital outflaws in debt instruments.
He added that several factors support easing including the appreciation of Egyptian pound against the US dollar and the decline in inflation rate below the CBE target.
Abdel Aal stressed the importance of cutting interest rates to boost economic growth, pointing out that the rate cut in August by 1.5% was good but not sufficient to encourage investors to borrow, as the level of interest on bank loans is still high.
Similarly, Tarek Metwally, a banking expert and former executive board member of BLOM Bank Egypt, said all indicators suggest a possible rate cut of between 1% and 1.5% at a meeting of the MPC on Thursday.
Same views was carried by Haitham Abdel Fattah, head of the treasury and capital markets sector at the Industrial Development Bank, who believes that all conditions encourage the CBE to continue the monetary easing cycle, and to reduce interest rates by between 1% and 1.5%.
Abdel Fattah pointed out that inflation rates have fallen below 5% for core inflation and less than 8% for headline inflation, which supports further cut in interest rates.
Bank expert Hany Abou El-Fotouh predicted that the MPC will move to reduce interest rates by% 1 to 1.5%, especially after the decision of the US Federal Reserve to cut interest rates by 0.25% for the second time in a row.
Abou El-Fotouh pointed out that this would encourage the CBE to reduce interest rates, stressing that the interest rate cut will stimulate the economy in general, and help to get out of the recession dominating the markets, and will contribute to reduce the burden of domestic public debt.
Beltone Investment bank expected the CBE to cut interest rates by 50-100 basis points at the MPC meeting on Thursday, cutting them by about 300 basis points in 2020.
Monette Doss, the company's macroeconomic and banking sector analyst explained that annual inflation fell below 9% year on year, within the CBE's target of 9% (+/-3%) in the fourth quarter of 2020, allowing the CBE to continue its monetary easing policy to stimulate economic growth and activity of the money market.
“Furthermore, in the global context of monetary easing, the European Central Bank cut its deposit interest rates by 10 basis points to -0.5% last week, as Egyptian Treasury bills continue to provide attractive returns and encourage inflows from carry trade. We, therefore, expect the Central Bank of Egypt to cut interest rates by 100 basis points at its next meeting,” she said.


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