Egypt's CBE likely to keep interest rates on hold for eighth successive meeting HC

Inflation in the country is still within the CBE's target range of 7% plus or minus 2 percentage points for the fourth quarter (Q4) of 2022 and is expected to average 5.9% in Q4-21 as "rising international prices of oil and other commodities impose significant inflationary pressures domestically, especially in light of recent official announcements of the government's intention to reduce its subsidy bill," Head of Macro and Financials at HC, Monette Doss, said.

Moreover, the prospects of global monetary tightening led to some mild interest rate pressures on the yields of the 12-month treasury bills (T-bills) in Egypt, increasing by 13 basis points (bps) since the beginning of October, Doss noted.

She added that Egyptian banks' net foreign liability position surged to $4.44 billion in August from $1.63 billion in July, imposing upward interest rate pressures on Egyptian treasuries.

Nonetheless, the 12-month T-bills continue to offer an attractive real return of about 3%, taking into account 15% taxes for European and US investors and an inflation forecast of 8% in 2022, compared to about 4% offered by Turkey, based on Bloomberg's one-year inflation estimate of about 14%.

Therefore, the CBE is likely to keep interest rates unchanged in its upcoming meeting on Thursday, Doss concluded.

In September, the CBE’s Monetary Policy Committee (MPC) decided to leave interest rates on hold for the seventh time in a row.

Back in November 2020, the MPC cut the overnight deposit rate, the overnight lending rate, and the main operation rate by 0.5% to 8.25%, 9.25%, and 8.75%, respectively.