Egypt: Rise of Interest Rates Limits Expansion of Private Sector Activities

A trader waits for customers at a market in Abbdien square in Cairo, Egypt. The cost of food has surged by 28 percent. Amr Abdallah Dalsh / Reuters
A trader waits for customers at a market in Abbdien square in Cairo, Egypt. The cost of food has surged by 28 percent. Amr Abdallah Dalsh / Reuters
TT
20

Egypt: Rise of Interest Rates Limits Expansion of Private Sector Activities

A trader waits for customers at a market in Abbdien square in Cairo, Egypt. The cost of food has surged by 28 percent. Amr Abdallah Dalsh / Reuters
A trader waits for customers at a market in Abbdien square in Cairo, Egypt. The cost of food has surged by 28 percent. Amr Abdallah Dalsh / Reuters

The expansion of the Egyptian private sector’s activities will continue to be constrained by rising interest rates, which are expected to maintain this trend under inflationary pressures, the Emirati Arqaam Capital said on Friday.

In a report titled, “Middle East and North Africa Strategy,” the bank said the next possible rate cut in Egypt could be in the third quarter of fiscal year 2019.

As emerging markets are tending to exit high-risk assets and rising inflation in Egypt, the central bank will delay rate cuts, limiting the private sector's ability to expand capital spending, the bank said.

In November 2016, Egypt adopted a flexible local currency exchange rate. The pound lost more than half of its value against the dollar. As the currency weakened, inflationary pressures rose to record levels.

In order to curb rising inflation, the central bank, sought to raise interest rates gradually by 700 basis points, significantly increasing investment costs and beginning to reduce them only this February.

During the last meeting of the Central Bank’s monetary policy committee in November 2018, the committee decided to keep rates for deposit and lending at 16.75 and 17.75 percent respectively, citing the country’s annual inflation rate in September and October, which reached 16 and 17.7 percent, respectively.

Egypt has relatively high growth rates at present, after years of slowdown as external and internal problems hit the domestic economy. Egypt’s GDP grew at a steady 5.4 percent in the second quarter of 2018 after rising for six straight quarters.



Gold Rises on Dip-buying, Focus on US-China Trade Updates

FILE PHOTO: Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. REUTERS/Angelika Warmuth//File Photo
FILE PHOTO: Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. REUTERS/Angelika Warmuth//File Photo
TT
20

Gold Rises on Dip-buying, Focus on US-China Trade Updates

FILE PHOTO: Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. REUTERS/Angelika Warmuth//File Photo
FILE PHOTO: Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, January 10, 2025. REUTERS/Angelika Warmuth//File Photo

Gold prices rebounded on Thursday as investors bought bullion following a sharp decline in the previous session, while focus still remained on US-China trade tensions.
Spot gold was up 1.6% to $3,340.79 an ounce, as of 0907 GMT, Reuters reported. Bullion lost over 3% on Wednesday, in its worst daily performance since late November.
US gold futures gained 1.8% to $3,352.10.
"Gold's pullback earlier has cleared some of the froth from its latest surge. That in turn attracted some buy-the-dip action, amid still-persistent global trade war fears," said Han Tan, Exinity Group's chief market analyst.
"Given the still-evident tailwinds for this precious metal, gold bugs could ultimately conquer the $3,500 level with conviction."
Non-yielding bullion, traditionally seen as a hedge against global instability, has risen over 27% so far this year.
The International Monetary Fund made sharp reductions to its outlook for both US and global growth this year, with President Donald Trump's tariff policy the central reason behind the downgrade.
"If the economic outlook deteriorates further, then there's no reason why gold could not receive another strong bid," said Ole Hansen, head of commodity strategy at Saxo Bank.
However, US Treasury Secretary Scott Bessent said the US economic growth will surpass the IMF's revised estimate of 1.8%, down from 2.7% in January, if Trump administration's policies are implemented.
He also said that the excessively high tariffs between the US and China are unsustainable, and must be reduced before trade negotiations can proceed.
Supporting gold, the US dollar eased, making the greenback-priced bullion cheaper for overseas buyers.
Spot silver fell 0.5% to $33.37 an ounce, platinum was steady at $973.25 and palladium was down 0.6% to $939.53.