Opinions and expectations varied regarding the decision by the Central Bank of Egypt's (CBE) Monetary Policy Committee (MPC) to raise or fix the country’s policy rates in its upcoming meeting on Thursday.
The research department at HC Securities and Investment expected the MPC to hike policy rates by 200 bps in the meeting.
Asharq Al-Awsat obtained a copy of its research note, in which head of macro and financials at HC, Monette Doss, said that looking at Egypt's external accounts, the company believes that pressure is accumulating on the country's balance of payment (BoP).
It included the company’s fiscal year (FY) 2021/22 current account deficit estimate of 4.8% of GDP, up from 4.6% a year earlier, April remittances declining 7% m-o-m to $3.1 billion, the banking sector's (excluding the CBE) net foreign liability position widening to $11.5 billion in June, and the drop in foreign currency deposits, not included in the official reserves, to $0.89 billion in July from $11.2 billion in December.
Add to these net international reserves settling at $33.1 billion representing 4.71 months of imports coverage, and Egypt's external debt repayment schedule showing dues (excluding GCC deposits) of $12.1 billion over FY 2022/23.
“Against this backdrop, we believe a 200 bps interest rate hike coupled with 9% currency devaluation to EGP21.2/ US dollar is necessary to support the currency and combat dollarization,” said Doss.
Doss added that the July inflation figure came in higher than HC’s estimate of 13% y-o-y, and it expects it to average 14.2% over the rest of the year, well above the CBE's inflation target of 7% (+/-2% for Q4 2022).
Egypt's annual headline inflation accelerated to 13.6% in July from 13.2% in the previous month, with monthly inflation increasing 1.3% m-o-m, compared to a decline of 0.1% m-o-m in June, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).
In its last meeting on June 23, the MPC decided to keep key policy rates unchanged after increasing it by 300 bps year to date.
Meanwhile, the research department at Beltone Financial Holding Company expected the CBE to fix the interest rate in its upcoming meeting, given the rise in Egypt’s annual general inflation in July.
However, it said the figure is less than the 15% expected rate.