Central Bank of Egypt meets Thursday, forecasts fixed interest rates

The deficit in net foreign assets worsened in June
Central Bank of Egypt meets Thursday, forecasts fixed interest rates
Egypt Central Bank

The Monetary Policy Committee of the Egyptian Central Bank is preparing for its meeting on Thursday amid expectations of keeping interest rates unchanged, despite ongoing inflationary pressures. In its last meeting in June, the Central Bank fixed the interest rate for the second time in a row, keeping the deposit rate at 18.25 percent and the lending rate at 19.25 percent.

According to a report from Morgan Stanley, the Central Bank of Egypt is expected to wait for an assessment of the effects resulting from the government’s sale of shares in state-owned companies, which was announced in July last year and raised approximately 1.65 billion dollars.

Morgan Stanley anticipates the possibility that the Central Bank may raise the interest rate by 2 percent during the September meeting, bringing it to 20.25 percent. This measure aims to provide more flexibility in managing foreign exchange rates.

On the other hand, HC Securities & Investments’ research management predicted that the Monetary Policy Committee would maintain the current interest rates unchanged in its meeting next Thursday, despite anticipating an increase in inflation for the month of July. The inflation data is scheduled to be released in the coming days, amid shortages of certain goods and inputs due to stricter import operations, as well as a shortage of foreign liquidity and international uncertainties.

Also, a survey conducted by Reuters at the beginning of this week shows that the Egyptian Central Bank is expected to keep interest rates unchanged in its meeting on Thursday, despite the record-high inflation. 

Read more: Egypt Central Bank fixes interest rates after raising them 3%

The survey included 16 analysts, and the average forecast indicates that the bank would maintain the interest rate. One analyst predicted that the bank would change interest rates and raise them by 100 basis points.

Net foreign assets

At the same time, data from the Egyptian Central Bank revealed that the deficit in net foreign assets increased by 82.1 billion Egyptian pounds (approximately $2.66 billion) in June compared to the previous month, resulting in net foreign assets reaching negative 837.3 billion Egyptian pounds (around $27.1 billion).

The Egyptian public finances have been under pressure due to the continuous shortage of foreign currency reserves, coupled with a sharp expansion in monetary supply over the past three years.

The Central Bank’s support of the Egyptian pound over the past two years has been partly facilitated by the withdrawal from net foreign assets. Net foreign assets represent the disparity between the foreign currency assets owned by the banking system and its liabilities. This withdrawal has played a role in bolstering the stability and value of the Egyptian currency.

The Central Bank has set the official exchange rate at around 30.90 pounds per dollar since early March. However, the exchange rate in the black market reached approximately 37.75 pounds per dollar until Sunday.

The decline in net foreign assets is due to increased borrowing by banks from abroad. Almost all of the decrease in June is attributed to the decline in net foreign assets held by commercial banks.

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