Egypt’s Central Bank Faces Multiple Crises, Limited Options

The Central Bank of Egypt (CBE) in Cairo, Egypt (Reuters)
The Central Bank of Egypt (CBE) in Cairo, Egypt (Reuters)
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Egypt’s Central Bank Faces Multiple Crises, Limited Options

The Central Bank of Egypt (CBE) in Cairo, Egypt (Reuters)
The Central Bank of Egypt (CBE) in Cairo, Egypt (Reuters)

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold a periodic meeting on Thursday when options to contain successive shocks to the Egyptian economy remain limited before growing local and global crises.

CBE will likely raise interest rates at today’s meeting to curb inflation, which has risen to unprecedented levels in Egypt.

Raising interest, however, will reduce chances of increasing growth rates in a country where the population exceeds 100 million people.

Moreover, it will increase the burden of debt service on the government.

CBE is forecast to hike its overnight interest rates by 200 basis points as it struggles to bring soaring inflation under control, a Reuters poll showed on Monday.

The median forecast in a poll of 15 analysts is for the bank to increase its deposit rate to 18.25% and its lending rate to 19.25% at its regular monetary policy committee (MPC) meeting. Seven of the analysts expected an increase of 300 bps.

At its last meeting on Feb. 2, the central bank left rates steady despite analyst expectations of a 150 bps increase, saying steep rate hikes put in place over the previous year should help to tame inflation, which in December had accelerated to a five-year high of 21.3%.

The central bank had raised rates by a total of 800 bps since Russia invaded Ukraine in early 2022.

With 12-month non-deliverable forward (NDF) rates now over 40 per dollar, another large-scale pound devaluation was just a matter of time, said Gergely Urmossy at Societe Generale.

“No time like the present to align foreign exchange rates with fundamentals,” Urmossy said, adding that the March 30 policy announcement was "one of the most anticipated events in the African Frontier space."

The weakening currency and soaring inflation, which in February hit a five-and-a-half-year high of 31.9%, also put more pressure on the central bank to raise rates, even if it adds to the costs of servicing climbing government debt.



Oil Falls on Signs of Progress in US-Iran Talks amid More Market Stress

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant/File Photo
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant/File Photo
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Oil Falls on Signs of Progress in US-Iran Talks amid More Market Stress

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant/File Photo
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant/File Photo

Oil prices fell more than 2% on Monday on signs of progress in talks between the US and Iran while investors remained concerned about economic headwinds from tariffs which could curb demand for fuel.

Brent crude futures slipped $1.51, or 2.2%, to $66.45 a barrel by 1115 GMT after closing up 3.2% on Thursday. US West Texas Intermediate crude was at $63.11 a barrel, down $1.57, or 2.4%, after settling up 3.54% in the previous session. Thursday was the last settlement day last week because of the Good Friday holiday, Reuters reported.

"The US-Iran talks seem relatively positive, which allows for people to start thinking about the possibility of a solution," said Harry Tchilinguirian, group head of research at Onyx Capital Group. "The immediate implication would be that Iranian crude would not be off the market."

Markets also have lower liquidity due to the Easter holiday, which can exacerbate price moves, he added. In the talks, the US and Iran agreed to begin drawing up a framework for a potential nuclear deal, Iran's foreign minister said, after discussions that a US official described as yielding "very good progress." The progress follows further sanctions by the US last week against a Chinese independent oil refinery that it alleges processed Iranian crude, ramping up pressure on Tehran.

Markets also came under stress on Monday, after US President Donald Trump last week made criticisms about the Federal Reserve. Gold prices rose to another record, with jitters rippling into energy markets due to concerns about demand, according to analysts.

"The broader trend remains tilted to the downside, as investors may struggle to find conviction in an improving supply-demand outlook, especially amid the drag from tariffs on global growth and rising supplies from OPEC+," said IG Market Strategist Yeap Jun Rong. OPEC+, the group of major producers including the Organization of the Petroleum Exporting Countries and allies such as Russia, is still expected to increase output by 411,000 barrels per day starting in May, though some of that increase may be offset by cuts from countries that have been exceeding their quotas. A Reuters poll on April 17 showed investors believe the tariff policy will trigger a significant slowdown in the US economy this year and next, with the median probability of recession in the next 12 months approaching 50%. The US is the world's biggest oil consumer.

Investors are watching for several US data releases this week, including April flash manufacturing and services PMI, for direction on the economy.

"This week's series of PMI releases could further underscore the economic impact of tariffs, with both manufacturing and services conditions across major economies expected to soften," IG's Yeap said, adding oil prices face resistance at the $70 level.