The Clap:
The Central Bank of Egypt (CBE) will hold interest rates steady at its upcoming meeting tomorrow in a bid to absorb expected price increases in energy and government-subsidized services, eleven investment banks surveyed by Asharq Business unanimously agreed.
What’s the catalyst for raising rates in general?
Increased interest rates lead to higher returns on savings, and increase the expense of taking out a loan.
Consumers respond to higher rates by avoiding big purchases and cutting back on spending due to the increased cost of borrowing money. Reducing consumer demand can aid in lowering prices and inflation rates.
Remember:
At its March 6 meeting, the CBE hiked its overnight deposit and lending rates and the main operation rate by 600 basis points to 27.25%, 28.25%, and 27.75%, respectively.
No rate cuts on the horizon:
“We think the CBE will not cut rates in its upcoming meeting,” Chief Equity Strategist at Rumble, Amr Elalfy, told us, noting several reasons:
#1 Annual inflation rate has been decelerating in the past four months but the monthly rate rose again in June, which indicates inflationary pressures, in addition to the upside from higher electricity and fuel prices in the coming few months.
#2 Real interest rates based on historical inflation rates are still negative.
#3 The IMF’s agreement with Egypt has been to maintain a tightening environment for as long as needed until the disinflationary path becomes more sustainable.
Going forward:
“Our base case is still that the CBE will start its easing cycle in 2025, and we expect it to do so gradually. Having hiked rates by 19% over 2022-2024, we expect the easing cycle to total 18% over a 4-year period (2025-2028),” Elalfy noted.
