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There's further tightening of interest rates on the cards in Egypt, said analysts, after the central bank on Thursday raised its overnight interest rates by a massive 200 basis points.
The Central Bank of Egypt increased the deposit rate to 11.25 percent from 9.25 percent and the lending rate to 12.25 percent from 10.25 percent as it looked to contain rising inflation after prices soared to their highest in three years.
"We expect the overnight deposit rate to end this year at 12.75 percent, which is higher than the consensus expects," said London-based consultancy Capital Economics in a note Thursday.
James Swanston, Middle East and North Africa economist, said he expects inflation will continue to accelerate over the coming months as the war in Ukraine keeps global food and energy prices elevated, and the effects of pound’s devaluation continue to push up the price of imported goods.
"Against the backdrop, we expect that policymakers will hike interest rates by a further 250bp, taking the overnight deposit rate to 12.75 percent, by the end of this year."
Dubai-based Emirates NBD Bank said while this was a bigger move than the consensus expectation, it was smaller their prediction. "With the CBE taking a less aggressive stance than we had anticipated we have pared our expectation for June’s meeting to a hike of 150bps, from 200bps previously. Nevertheless, the direction of travel will remain towards tighter monetary policy with inflation set to remain high over the next several months and the US Federal Reserve signposting a series of 50bps hikes itself," Daniel Richards, MENA Economist at the bank, said.
Eighteen analysts polled by Reuters had expected the bank to raise the median deposit rate to 11.00 percent and its lending rate to 12.25 percent. Monette Doss, Head of macro and financials at Egypt-based HC Securities & Investment had predicted the rate of increase accurately. Fitch Ratings said the rate hike would be between 200bps and 300bps.
(Reporting by Brinda Darasha; editing by Seban Scaria)
