Given the ongoing war in Gaza and the upcoming December presidential election, there is an anticipation that the Central Bank of Egypt (CBE) will uphold its existing interest rates. This expectation is in place for the monetary policy committee (MPC) meeting scheduled for Thursday. This decision is aimed at promoting stability in the country as the government navigates these challenging circumstances.
A poll conducted by Reuters indicates that 16 analysts participated. The median forecast from the poll suggests that the Central Bank will maintain its deposit interest rate at 19.25 percent. Additionally, it is expected to keep its lending rate at 20.25 percent during the regular MPC meeting. This forecast reflects the expectation that the rates will remain unchanged.
Most analysts predict that the CBE will keep its current interest rates unchanged. However, three analysts have a different perspective. They expect a 100 basis point increase in the interest rates. It is worth noting that the bank has refrained from making any adjustments to its currency. Additionally, there have been no changes to the bank’s interest rates for several months.
Fixed exchange rate
For several months, the CBE has displayed a reluctance to make any adjustments to the currency or interest rates. Since March, it has maintained a fixed exchange rate of 30.95 Egyptian pounds to the U.S. dollar. In September, inflation reached a record high of 38 percent. However, the Central Bank’s response was relatively modest. They made a small adjustment to the overnight interest rate, increasing it by just 100 basis points.
In a statement to Reuters, Carla Slim of Standard Chartered said she expected the “CBE to extend a pause on both FX and rates adjustments until a likely augmented IMF program is finalized.”
Financial support agreement
As part of a financial support package worth $3 billion, Egypt entered into an agreement with the International Monetary Fund (IMF) in December. In this agreement, Egypt committed to allowing its currency to float freely and expediting the sale of state assets in order to address its budget and current account deficits. However, progress in both areas has been sluggish and has not met the anticipated pace outlined in the agreement.
Under the terms of the agreement, the IMF was scheduled to disburse funds to Egypt twice a year over a period of 46 months. However, the June payment was postponed due to reports indicating the IMF’s dissatisfaction with Egypt’s progress in meeting the agreed-upon conditions.
Currency adjustment delayed
According to many analysts, it is widely believed that Egypt is holding off on making any adjustments to its currency until after the election. Currently, the currency trades at approximately 45 Egyptian pounds to the U.S. dollar on the black market. Additionally, it is anticipated that Egypt may seek to secure an expansion in the size of the financial support package offered by the IMF.
“We expect to see a large rate hike at the time of the next devaluation, following the presidential election,” said Abu Dhabi Commercial Bank (ADCB) economist Monica Malik. “At this point, we see the focus on reducing pressures on households.”
On October 7, Standard & Poor’s credit rating agency downgraded Egypt’s credit rating from “B” to “B-“. The downgrade was attributed to the potential impact of the ongoing conflict between Israel and Gaza on the country’s economy.
The credit rating agency made a prediction regarding the ongoing conflict. They anticipated a decline in tourist arrivals in Egypt as a likely outcome. This decrease in tourism could potentially place additional strain on the country’s economy.
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