Egypt’s Central Bank Cuts Interest Rate, Government Sets Realistic Expectations for EGP

Central Bank of Egypt's headquarters is seen in downtown Cairo. Reuters
Central Bank of Egypt's headquarters is seen in downtown Cairo. Reuters
TT
20

Egypt’s Central Bank Cuts Interest Rate, Government Sets Realistic Expectations for EGP

Central Bank of Egypt's headquarters is seen in downtown Cairo. Reuters
Central Bank of Egypt's headquarters is seen in downtown Cairo. Reuters

Egypt’s central bank cut its key interest rates by 100 basis points for the second meeting in a row on Thursday, but the Ministry of Finance announced the same day reducing its expectations of the Egyptian pound (EGP) dollar exchange rate, which analysts describe as realistic.

The central bank raised interest rates by 700 basis points on several steps. But last February, the bank moved to curb interest rates as inflationary pressures subsided.

In a statement issued Thursday evening, the bank stated: “Annual urban consumer price inflation fell to 14.4 percent in February while core inflation, which strips out volatile items like food, fell to 11.9 percent.”

The bank cut its overnight deposit rate to 16.75 percent from 17.75 percent and its overnight lending rate to 17.75 from 18.75 percent, said the statement.

Bloomberg agency reported that the yield on one-year notes fell 12 basis points to 16.559 percent in the government’s debt auction. Returns have dropped by about 160 points since the beginning of the year, as investors priced-in the interest rate cuts.

Bloomberg quoted head of macro analysis at investment bank EFG-Hermes in Cairo Mohamed Abu Basha as saying that yields could dip slightly but not by much, because the market was already expecting the lower rates even before the central bank started the easing cycle last month.

“The fact that the cuts seem to be gradual means that they will not put much pressure on yields,” Abu Basha added.

Egypt is expected to make new increases in the prices of fuel, electricity and public transportation under a plan adopted by the country to liberalize the energy support system and rebuild social policies.

Meanwhile, Egypt’s Prime Minister Sherif Ismail told reporters on Thursday the new budget set the price of petroleum at $67 per barrel and the US dollar exchange rate at EGP 17.25.

This means a reduction in the government's assessment of the value of the EGP against the dollar, where in previous budgets, the US dollar was valued at 16 EGP. It also means the government increased its forecasts for oil prices, which was estimated in the budget 2017-2018 at $55 per barrel.

Senior economist at regional investment bank Arqaam Capital, Reham el-Desoki told Asharq Al-Awsat that this is not a devaluation of the EGP, but the expectations in the current budget are not realistic.

Desoski expects a relative stability of the local currency in the next two and a half years, unless surprised with unexpected jump in tourism revenues.

Ismail indicated that total investments according to the new plan are estimated at EGP 942.2 billion, an increase of about 46 percent compared with last year's figures.

Later, Finance Minister Amr al-Garhy said the budget of next fiscal year is valued at EGP 1.412 trillion.

During a television interview, Garhy said that the total budget deficit of GDP is 8.4 percent, compared with current year’s deficit between 9.6 and 9.8 percent.



IMF Reaches Deal with Troubled Argentina on $20 Billion Bailout

FILE - Argentina's President Javier Milei arrives to speak before President-elect Donald Trump during an America First Policy Institute gala at his Mar-a-Lago estate, Nov. 14, 2024, in Palm Beach, Fla. (AP Photo/Alex Brandon, File)
FILE - Argentina's President Javier Milei arrives to speak before President-elect Donald Trump during an America First Policy Institute gala at his Mar-a-Lago estate, Nov. 14, 2024, in Palm Beach, Fla. (AP Photo/Alex Brandon, File)
TT
20

IMF Reaches Deal with Troubled Argentina on $20 Billion Bailout

FILE - Argentina's President Javier Milei arrives to speak before President-elect Donald Trump during an America First Policy Institute gala at his Mar-a-Lago estate, Nov. 14, 2024, in Palm Beach, Fla. (AP Photo/Alex Brandon, File)
FILE - Argentina's President Javier Milei arrives to speak before President-elect Donald Trump during an America First Policy Institute gala at his Mar-a-Lago estate, Nov. 14, 2024, in Palm Beach, Fla. (AP Photo/Alex Brandon, File)

The International Monetary Fund on Tuesday said it has reached a preliminary agreement with Argentina on a $20 billion bailout, providing a welcome reprieve to President Javier Milei as he seeks to overturn the country's old economic order.
As a staff-level agreement, the rescue package still requires final approval from the IMF’s executive board. The board will convene in the coming days, the IMF statement said.
The fund's long-awaited announcement offered a lifeline to President Milei, who has cut inflation and stabilized Argentina's troubled economy with a free-market austerity agenda. His policies have reversed the reckless borrowing of left-wing populist governments that had brought Argentina infamy for defaulting on its debts. The country has received more IMF bailouts than any other.
It came at a critical moment for South America's second-biggest economy. Pressure had been mounting on Argentina’s rapidly depleting foreign exchange reserves as the government tightened rules on money-printing and burned through its scarce dollars to prop up the wobbly Argentine peso.
Fears grew that if the government failed to secure an IMF loan, hard-won austerity measures would veer off-track and leave Argentina, once again, unable to service its huge debts or pay its import bills.
The fresh cash gives Milei a serious shot at easing Argentina's strict foreign exchange controls, which could help convince markets of his program's sustainability. For the past six years, the capital restrictions have dissuaded investment, preventing companies from sending profits abroad and ensuring the central bank's careful management the peso, which is pegged to the dollar.
Racking up 22 IMF loans since 1958, Argentina owes the IMF more than $40 billion. Most IMF funds have been used to repay the IMF itself, giving the organization a fraught reputation among Argentines. Many blame the lender for the country's historic economic implosion and debt default in 2001.
The IMF was wary of striking yet another deal with its largest debtor. But over the past 16 months, fund officials have praised Milei's austerity — a diet harsher than even the fund's typical prescription.
A former TV personality and self-proclaimed “ anarcho-capitalist,” Milei came to power on a vow to shrink Argentina's bloated bureaucracy, kill spiraling inflation, open the economy to international markets and woo foreign investors after years of isolation.
Unlike Argentine politicians in years past who sought to avoid enraging the masses with brutal austerity, Milei has taken his chainsaw to the state, firing tens of thousands of state employees, dissolving or downgrading a dozen ministries, gutting the education sector, cutting inflation adjustments for pensions, freezing public works projects, lifting price controls and slashing subsidies.
Critics note that the poor have paid the highest price for Argentina's rosy macroeconomic indicators. Retirees have been protesting weekly against low pensions, with the decrease in payments accounting for the largest share of Milei’s budget cuts. Major labor unions announced a 36-hour general strike starting Wednesday in solidarity.
Still, Milei has maintained solid approval ratings, a surprise that analysts attribute to his success in driving down inflation, which dropped to 118% from 211% annually during his first year in office. Flipping budget deficits to surpluses has sent the local stock market booming and its country-risk rating, a pivotal barometer of investor confidence, tumbling.
“The agreement builds on the authorities’ impressive early progress in stabilizing the economy, underpinned by a strong fiscal anchor, that is delivering rapid disinflation,” The Associated Press quoted the IMF as saying in announcing the agreement under a 48-month arrangement. “The program supports the next phase of Argentina’s homegrown stabilization and reform agenda."
It remained unclear how much money Argentina would receive up-front — a key sticking point in the most recent negotiations over the deal's details. Argentina is seeking a hefty payment upfront to replenish its reserves, even as IMF loans are usually disbursed over several years.
Milei shared the IMF statement on social media platform X, attaching a photo that showed him hugging Economy Minister Luis Caputo. “Vavos!” he wrote — apparently misspelling “Vamos!” or “Let's go!” in his excitement.