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
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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.



Stocks Stabilize, Gold Hits Record before Trump Tariff Reveal

FILE PHOTO: Gold bars are displayed at a gold jewelery shop in the northern Indian city of Chandigarh May 8, 2012. REUTERS/Ajay Verma (INDIA - Tags: BUSINESS COMMODITIES)/File Photo
FILE PHOTO: Gold bars are displayed at a gold jewelery shop in the northern Indian city of Chandigarh May 8, 2012. REUTERS/Ajay Verma (INDIA - Tags: BUSINESS COMMODITIES)/File Photo
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Stocks Stabilize, Gold Hits Record before Trump Tariff Reveal

FILE PHOTO: Gold bars are displayed at a gold jewelery shop in the northern Indian city of Chandigarh May 8, 2012. REUTERS/Ajay Verma (INDIA - Tags: BUSINESS COMMODITIES)/File Photo
FILE PHOTO: Gold bars are displayed at a gold jewelery shop in the northern Indian city of Chandigarh May 8, 2012. REUTERS/Ajay Verma (INDIA - Tags: BUSINESS COMMODITIES)/File Photo

Asian equities rose on Tuesday following Wall Street's overnight gains, while gold hit an all-time peak and Treasury yields fell as markets awaited details of US President Donald Trump's reciprocal tariffs.
The Japanese yen strengthened as traditional haven assets drew demand.
At the same time, the risk-sensitive Australian dollar rebounded after the Reserve Bank of Australia left interest rates steady, as widely expected, but warning of "pronounced" global uncertainty.
Regional stocks found some respite on the first day of April after being battered in March by worries that Trump's trade war could trigger stagflation or even a US recession, reported Reuters.
Investors are nervously awaiting April 2, a day Trump has dubbed "Liberation Day", when he has promised to unveil a massive reciprocal tariff plan.
Australia's benchmark equity index advanced 1%, while South Korea's KOSPI climbed 1.9% and Taiwan's equity benchmark rose 1.7%, following steep drops on Monday.
At the same time, Hong Kong's Hang Seng and Japan's Nikkei gave up gains of 1% or more to be flat to slightly higher. Mainland Chinese blue chips were also little changed after struggling all session.
Pan-European STOXX 50 futures added 0.35%.
The US S&P 500 gained 0.55% on Monday, snapping a three-day losing run, but futures pointed 0.34% lower.
"It is possible that a significant portion of last night's rebound in the key (Wall Street) indices was attributable to month-end and quarter-end rebalancing flows, as well as short covering ahead of Trump's Liberation Day, amid considerable uncertainty about what comes next," said Tony Sycamore, an analyst at IG.
"US equity markets are priced for a slowdown in growth and earnings. However, they are not priced for a recession, and if the US economy enters recession, US stock markets could easily fall by another 10%."
Bullion powered to a record high for a fourth straight session, hitting $3,148.88 per ounce.
"On top of general risk aversion, investors are increasing allocation to gold with the Trump administration's trade policy threatening the dollar's special reserve status," said Kyle Rodda, senior financial markets analyst at Capital.com.
"The fundamental backdrop remains strong for gold."
DOLLAR UNDER PRESSURE
Demand for the safety of Treasuries sent yields lower on Tuesday, with those on benchmark 10-year notes sinking some 5 basis points to 4.1920%.
That put pressure on the dollar, which slipped 0.08% to 149.85 yen. The euro was steady at $1.0813.
The Aussie added 0.14% to $0.6258. The RBA held rates at 4.1%, having just cut them by a quarter point in February for the first time in over four years.
"Geopolitical uncertainties are also pronounced," the RBA said in its statement, adding that US tariffs are having an impact on confidence globally.
"The RBA's statement suggests they're inching towards their next cut, but in no rush to signal one," said Matt Simpson, senior market analyst at City Index.
"The RBA just want more time to be confident that policy is on the right track."
Bitcoin was slightly higher at around $83,040.
Oil prices rose, adding to the 2% surge from Monday. Brent gained 0.23% to $74.94 a barrel, while US West Texas Intermediate crude advanced 0.22% to $71.64.
At the weekend, Trump threatened secondary tariffs on Russian crude and on Iran. He also warned Iran of bombing if Tehran did not come to an agreement with Washington over its nuclear program.