The Central Bank of Egypt, in a surprise meeting, announced a 1% increase in interest rates. The Monetary Policy Committee was scheduled to meet next Thursday, but perhaps due to market pressures, the central bank decided to hold an interest rate meeting earlier this week.

The Central Bank of Egypt said in a statement that an extraordinary meeting of the Monetary Policy Committee decided to increase the overnight deposit and lending rates and the price of the main business of the Central Bank by 100 basis points. After the rate hike, interest rates will reach 9.25%, 10.25% and 9.75%, respectively, and credit and discount rates will rise by 100 basis points to 9.75%.

Previously, the Central Bank of Egypt set interest rates in the last 10 meetings of the Monetary Policy Committee, and the last change in the rate was 16 months ago, when it decided to cut the interest rate by about 50 basis points in November 2020.

The dollar jumps to the level of 17.4 pounds sterling

Regarding the reason behind the sudden change in interest rates, while most of the Egyptian banks have dollar / sterling rates around 15.64 and 15.74 pounds,

the decision led to the highest dollar exchange rate since 2017, when the US dollar exchange rate reached 19.60 pounds, The decision until a few months later, the pound was floated and the foreign exchange market was liberalized.

In today’s trading, minutes after the announcement of the decision to adjust interest rates, government banks bought 16.95 pounds for the dollar and sold 17.05 pounds. The US Green Book has a purchase price of £17.42 and a selling price of £17.52.

And the dollar exchange rate in Al-Ahly and the Egyptian Bank recorded buying at about 17.40 pounds and selling at about 17.50 pounds. The dollar was bought at about 17.42 pounds and sold at 17.52 pounds at the exchange rate of the Mashreq, the Arab Africans, the Arab International Bank “CIB”, the Emirates NBD, Faisal Islamic and “HABC”.

While it was registered with the Industrial Development Bank, Central Bank of Egypt, Al Baraka Egypt, Abu Dhabi Islamic Bank, Union Bank, National Bank of Kuwait and the Egyptian Real Estate Bank, the purchase level was 15.66 pounds and the purchase level was 15.76 pounds. a discount.

The Egyptian pound is overvalued

The American investment bank “JP Morgan” expected that the Egyptian pound will need a sharp devaluation, indicating that the Egyptian government may need more assistance from the International Monetary Fund if financial market pressures persist.

Analysts at the bank expect that Egypt, which is already under pressure, will further damage Egypt’s public finances, in light of the rise in commodity and food prices and the possibility of a decrease in the number of Russian tourists.

“We expect the exchange rate to need to be reduced now,” he added, estimating that the Egyptian pound is currently overvalued by more than 15 percent. Bank of America proposed several scenarios,

the first of which is not to let the currency depreciate, similar to the 2014-2015 scenario where the authorities allowed the currency to depreciate by about 5%, and the third is a larger devaluation in the framework of 2015. A new program with the International Monetary Fund.

An analysis of this situation leads to a probability of an 8.5% decrease in the current rate against the US dollar. He added that the target price is for the currency to fall to 17.25 pounds per dollar. Meanwhile, the Egyptian currency was recently trading at 15.72 pounds to the dollar, about 10% below JPMorgan’s target, according to Refinitiv data.

As a quick reaction to the decision to raise interest rates, the government bank decided to offer a special certificate with an annual return of 18%. Hisham Okasha, Chairman of the Board of Directors of the National Bank of Egypt, said, in a statement, that an emergency meeting was held this morning for the Alico Committee of the National Bank of Egypt,

which resulted in the issuance of the certificate and its opening to the public as of today. Meanwhile, Yahya Aboul Fotouh, Vice Chairman of the Board of Directors of the National Bank of Egypt, said that an emergency meeting of the “Alico” committee of the National Bank of Egypt took place this morning, and the certificate was finally issued. It will be open to the public starting today.

Banque Misr also announced the issuance of a new certificate for the savings vessel “Talaat Harb”, which is a savings certificate with a fixed rate of return during the certificate’s retention period. Certificates are issued to natural persons or minors starting at £1,000 and in multiples from the business day after purchase.

According to a statement, Banque Misr confirmed that, in addition to issuing a credit card with its guarantee, money can also be borrowed with the guarantee of the certificate, and the certificate can be redeemed after 6 months from the date of purchase (issuance date) a working day. He explained that certificates can be purchased from any of the bank’s more than 750 branches throughout the country.

Inflation expectations rise to 11.5%

In a recent research note, HC Securities and Investment Research expects the CBE to raise interest rates by 0.5 – 0.75 basis points at its next meeting scheduled for Thursday, March 24.

“We have raised our inflation forecast for 2022 to 11.5% from 7.2% previously due to higher global wheat and oil prices, and we expect lower imports of consumer goods, which could lead to some supply shortfalls,” said the company’s chief macroeconomic and financial services analyst. .

On the other hand, “HC” accounts show that the influx of funds benefiting from the difference currently requires an annual yield of 14.8% (162 basis points higher than the last issue) on Egyptian T-bills based on CDS. During the year period, currently at 560 basis points,

Bloomberg Fed’s estimate of 2022 at 1.55%, the inflation differential in Egypt 2022 with the United States is 544 basis points (calculating the expected inflation rate in Egypt for 2022 at 11.5%, while “Bloomberg” estimates US inflation rate for 2022. 6.1%).

Doss said that the current influx of funds benefiting from the spread of the Egyptian debt market is considered necessary to support Egypt’s foreign exchange reserves, especially since the net external debt position of Egyptian banks expanded to 11.5 billion dollars in January.

(January) And it may get worse since the start of the Russo-Ukrainian war. The net outflow of foreign capital from the Egyptian market amounted to $2.3 billion. Therefore, we expect the MPC to raise the benchmark rate by 0.5 – 0.75 basis points at its next meeting. “