The research division of HC Securities and Investment expected the Monetary Policy Committee of the Central Bank of Egypt to raise interest rates at its next meeting.
“We expect the Monetary Policy Committee to continue its tightening policy and raise interest rates by about 200 basis points at the meeting scheduled for Thursday, March 30.
The aim is to contain rising inflation rates, which we expect to continue rising, peaking at 35.9 percent in July, before falling gradually to 30.3 percent in December,” said Heba Mounir, macro- economic analyst at HC Securities and Investment.
Mounir expects the inflation figures for March and the coming months to reflect:
1- An increase in fuel prices between seven and 11 percent at the beginning of March, and a 20 percent increase in the price of diesel fuel for all industries except food and electricity.
2- An increase in electricity prices for households from July
3-The liberation of the price of some staple foods such as rice.
4- Shortage of domestic poultry stocks due to problems related to feed prices and its availability, which were affected by the Russo-Ukrainian war.
5- The depreciation of the Egyptian pound by 20 percent since the beginning of the year, due to the fall in foreign exchange earnings. A wider gap in liabilities and assets in the foreign currency banking sector.
Due to the fall in foreign exchange earnings, the gap in liabilities and assets widened in the foreign currency banking sector, with net liabilities owed by the banking sector, including CBE figures, rising to US$21.6 billion in January 2023 compared to $20.0 billion in December 2022, Mounir said.
Excluding central bank data, net foreign currency liabilities of the banking sector rose to $13.0 billion in January, compared to $11.7 billion in December 2022.
Due to mounting inflationary pressures and Egypt’s need to maintain an attractive investment climate, Mounir expected the yield investors demand on Egyptian 12-month Treasury bills to reach 25.18 percent, reflecting the rise in defaults reflects. swap for Egypt for one year to 1,419 from 670 in early February.
The total investment of foreign investors in Egyptian treasury bills increased by $2.4 billion in December 2022 to $10.4 billion at the end of January 2023.
The latest Treasury bill issuance for a 12-month period posted an average yield of 19.19 percent (net of taxes of 15 percent for US and European investors), reflecting a real yield of -2.31 percent, taking into account an inflation forecast of 21.5 percent in March 2024, reinforcing the expected rise in interest rates from HC Securities and Investment, Mounir added.
“We expect the real return to turn into a positive return of 1.33 percent after deducting taxes of 15 percent for foreign investors on their expected returns,” she said, forecasting an inflation rate of 20.1 percent for April 2024 .
On the upside, deposits not included in official reserves rose for the third straight month, up 19 percent month-on-month to $2.61 billion in February, but it’s still below the $9.38 billion mark which was registered in 2022, according to Mounir.
Net foreign exchange reserves also rose 0.4 percent month-on-month for the sixth consecutive month to $34.3 billion in February, while declining 16.2 percent year-on-year.
The Monetary Policy Committee of the Central Bank of Egypt, at its meeting on February 2, 2023, set interest rates on deposits and overnight loans at 16.25 percent and 17.25 percent, respectively, after raising interest rates by 800 basis points in 2022 and by 500 basis points basis points in the fourth quarter separately.
According to data from the Central Agency for Public Mobilization and Statistics, inflation in Egypt rose to 31.9 percent on an annual basis in February from 25.8 percent on an annual basis in January.
Turning to the monthly change, monthly prices rose 6.5 percent month-on-month in February 2023 compared to an increase of 4.7 percent.
This will be on a monthly basis in January, mainly due to a 14.4 percent month-on-month increase in most food and beverage prices compared to a 10.1 percent increase in January 2023.
Worldwide, the US Federal Reserve hiked rates by 25 basis points on Wednesday, bringing the total increase amount year-to-date to 50 basis points, following a rate hike of 425 basis points over the course of 2022.