The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold its periodic meeting on Thursday to discuss the future of the country's basic interest rates, which is the main indicator of the EGP's interest in the short term. The MPC decided in its last meeting on 23 June 2022 to set the interest rates at 11.25% for deposits, 12.25% for lending, and 11.75% for the credit and discount rate and the price of the main transaction after the CBE raised these by 3% during the Committee's meetings in March and May last year. The committee's meeting this time comes amid a divergence in market expectations regarding the decision that it can take in light of recent inflation rates and developments in the financial markets locally and globally. However, the fate of the interest rate action is now undecided after the resignation of the CBE Governor Tarek Amer. Before the resignation, Beltone Financial expected the CBE to maintain the current rates. Moreover, its Research Department said that despite the rise in general inflation in July to 13.6% compared to 13.2% in June, it still came in less than the expected 15%. It also pointed out that the annual rise in inflation came as a result of the rise in the monthly inflation rate by 1.3%, compared to its decline by 0.1% in June, but it also came less than expectations that indicate a 2.5% rise. Beltone also expects that the recent increase in diesel prices would affect the price hikes in food commodities, given the increase in transportation costs, pointing out that inflation is expected to reach its highest level at 16.5% in August, with an average of 15.5% expected in the third quarter (3Q) of 2022. At the same time, it indicated that inflationary pressures have been contained so far, as the change in the prices of vegetables and fruits reflected positively on general inflation levels. On the other hand, the Research Department of HC Securities expects that the MPC would raise the interest rate by 200 basis points. Monette Doss — Senior Analyst for the company's Macroeconomic and Financial Services Sector — said that the inflation rate for July was higher than the expected 13% on an annual basis, estimating inflation to average 14.2% over the remainder of the year. Doss also foresees the possibility of a reissuance of high-interest-rate certificates by state-owned banks to boost remittances, especially with rising income levels in the GCC. Additionally, a report issued by Fitch Ratings earlier expected that the CBE would resort to raising interest rates by about 3% during its remaining meetings in 2022, especially with the decline in domestic economic activity, explaining that the repercussions of the Russian-Ukrainian War on the Egyptian and global economy are deep and have led to higher rates of inflation and a slowdown in the tourism sector. Fitch also indicated that raising the interest rates will raise borrowing costs and encourage some to save instead of investing, however, the institution believes that the increase in foreign investments as a result of raising interest rates will offset some of the negative effects on the economic sector. Finally, in a report by BNP Paribas, researchers expected the CBE to raise interest rates by no less than 1% in August and November, expecting inflation rates to rise again to reach to a peak of 17.7% in October.
