CBE's Monetary Policy Committee convenes to decide on interest rates

Maintaining local currency attractive amid economic uncertainty due to Covid-19 crisis suggests keeping rates unchanged

The Central Bank of Egypt's Monetary Policy Committee (MPC) will hold its fourth regular meeting this year, on Thursday, to discuss the fate of the interest rates at the CBE, which are the primary indicator of interest rates in the Egyptian market, amid expectations that the rates will be fixed.
The MPC had kept the interest rates unchanged on 2 April, with the overnight deposit and lending rates at 9.25% and 10.25%, respectively, and the main operation, credit, and discount rates at 9.75%.
The committee said the rates were consistent with the CBE's target inflation rate of 9% (±3%) in the fourth quarter (4Q) of 2020, and price stability in the medium term.
The monthly core CPI inflation, computed by the CBE, recorded 1.0% in April, compared to 0.4% in March. Accordingly, the annual core inflation reached 2.5% in April, compared to 1.9% in March.
Banking expert Mohamed Abdel Aal expected the CBE to keep the interest rates unchanged at the 14 May meeting, noting that stabilising the interests would contribute to preserving foreign investments in Egyptian debt instruments and limiting their exit.
He pointed out that the CBE provided many initiatives with subsidized loans to the industry, agriculture, tourism, and real estate sectors, which ease the pressure on the MPC to cut the rates.
Abdel Aal explained that the CBE can either reduce interest to stimulate investment and reduce the cost of debt, or to stabilise rates to maintain depositors' savings and maintain the attractiveness of the Egyptian pound.
Moreover, banking expert Tarek Metwaly stressed that all market indicators suggested that the CBE would keep the rates unchanged.
He pointed out that the prevailing uncertainty due to the coronavirus crisis, and the repercussions that will follow during the coming period, reinforce the approach to fix the interest rates.
He added that a slight increase in inflation also enhances the chances of fixing the rates.
Radwa El-Swaify, head of research at Pharos Holding, said that the MPC will keep the rates changed having already cut them by 300 basis points in March to stimulate the economy and reduce the pressure on economic activities as a result of the ongoing curfew.
“Before taking any decision to change interest rates, the committee will first take into consideration market conditions, the impact of the previous rate cut, inflation rates and trends in light of what is happening recently, and in light of global developments,” she added.
Monette Doss, the economist and banking analyst at HC, also said the CBE is likely to keep interest rates unchanged at its Thursday meeting, given that inflation rates remain within its target of 9% (±3%) for 4Q 2020.