What are the CBE’s options after the Fed raised interest rates?

The Federal Reserve has since last year implemented its promises to raise interest rates to reach the highest increase in more than 22 years, after deciding to raise the benchmark interest rate by half a percentage point, in an effort to raise high inflation rates in the United States, after recording about 6.5 percent, which increased pressure on the rest of the central banks around the world, including the Central Bank of Egypt.

Arab central banks rush to raise interest rates

And the Arab central banks rushed to the “Federal” decision to raise interest rates, as the Saudi Central Bank announced that it would increase the rate of “repo” agreements by 0.5 percent, from 1.25 to 1, 75 percent, in addition to increasing the rate of reverse repo agreements reversing “repo” by 0.5 percent, from 0.75 to 1.25 percent.

At the same rate, Bahrain Central raised the basic interest rate for deposits for a week by 50 basis points to 1.75 percent. It also raised interest rates on deposits and overnight loans by 50 basis points to 1.5 per cent and 3 per cent respectively.

In the same context, the Central Bank of the United Arab Emirates increased the base interest rate by 50 basis points from Thursday. The Qatar Central Bank has decided to increase the deposit rate by 50 basis points to 1.50 per cent and the lending rate by 25 basis points to 2.75 per cent. To a lesser extent, the Central Bank of Kuwait increased the discount rate by a quarter percentage point from 1.75 percent to 2 percent.

In Cairo, the financial and business community awaits the outcome of the Central Bank of Egypt’s Monetary Policy Committee meeting to be held on Thursday, May 19 (May), amid consensus on the bank’s tendency to raise interest rates, while analysts’ opinions differ in their talk with “The Independent Arabia” about the expected rate of increase in interest rates, in addition to the repercussions of the decision on the local Egyptian markets.

The Monetary Policy Committee of the Central Bank of Egypt decided in an extraordinary session on March 21 to raise interest rates by 100 basis points or 1 percent.

proactive move

In turn, Hani Genena, head of the research department at the American University in Cairo, said that the Egyptian central bank “has no way of raising interest rates after most central banks in the Middle East have also raised them”.

Geneina expects to raise interest rates in Egypt by “not less than 200 basis points, equivalent to 2% to combat high inflation, after its rates reached 12% last March,” and notes that the bank “a must take proactive step before announcing The Central Agency for Public Mobilization and Statistics (CAPMAS) expects inflation to exceed the 13% limit at least last April.

On the impact of rising interest rates on rising domestic investment costs, Geneina explained that the risks at the moment are “not in interest rates”, explaining that “the biggest risks facing investors are inflation and the state of uncertainty is that which prevails over the whole world. “

Will inflation fall?

In turn, macroeconomic researcher Ali Al-Idrisi expected the Central Bank of Egypt to raise interest rates by between 0.5 and 1 percent, stressing that “it will not exceed it.”

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He added that raising interest rates “would reduce inflation rates by withdrawing liquidity from the body of the economy and out of the hands of citizens, while reducing demand, which would bring down inflation,” pointing out that raising interest rates “is not the only instrument to reduce inflation rates,” and called on the Egyptian government to “take a package of preventive measures to curb inflation.

Al-Idrisi explained that “the government needs to rationalize import operations from abroad, in addition to increasing the pace of local production, and spreading awareness among citizens to rationalize spending by focusing on the purchase of basic and strategic commodities, the reducing spending on leisure goods or luxuries, and arranging priorities Most of the world’s countries currently pay citizens to slow down spending and consumption by prioritizing spending.

More pressure on countries with heavy debt

In turn, former adviser to Financial Supervisory Authority Chairman Medhat Nafeh said that raising the US interest rate “means more pressure on debtor countries, which will force the principal amount and interest of debt back into a relatively more expensive one”. to pay. dollars, “adding that the countries that have a lot of debt,” will have to borrow again to repay the loans. ” List with higher benefits.

He added, “One of the negative consequences of raising interest rates is the high cost of acquiring the dollar, which means that imports will be affected and the trade balance deficit will increase as the import bill rises, for fear of a recurrence of the 2013 crisis in emerging economies.

Regarding the Central Bank of Egypt’s decision at its next meeting, he said it was difficult to speculate on his decision, “but at the same time the chance tends to increase interest rates further to a decline in real interest rates with ‘ a significant increase in inflation. “

The annual inflation rate in Egypt last March recorded about 12.1 percent, rising for the fourth consecutive month, compared to 8 percent in January and 10 percent in February, according to data from the Central Agency for Public Mobilization and Statistics.

At this rate, inflation in Egypt has exceeded the targets of the Central Bank of Egypt, as it sets a target band for the annual inflation rate at the level of 7 percent (plus or minus 2 percent) on average until the last quarter of 2022.

In turn, the director of the Cairo Center for Economic and Strategic Studies, Abdel Moneim El-Sayed, expected the continuation of the Federal Reserve’s policy of quantitative monetary tightening “foreign indirect investment in debt instruments in emerging markets, especially Egypt,” will have a negative impact. ” notes that Cairo relies heavily on “Foreign investment in government debt instruments (hot money), which threatens the stability of the exchange rate of the Egyptian pound against the US dollar, in addition to the withdrawal of a percentage of liquidity from the Egyptian Stock Exchange, by the decrease in the volume of foreign transactions, which is concentrated in leading equities. It will also push gold prices worldwide to fall, “and it is likely that” the price of an ounce will fall to less than $ 1800. “

Interest rates reach Parliament

And interest rates in Egypt not only ended at the thresholds of the Egyptian Central Bank, but moved to the dome of Parliament as a member of the Planning and Budget Committee in the House of Representatives, Amal Abdel Hamid, a requested information from the government, demanding that it intervene and take precautionary measures to address the effects of the rate hike following the decision of the US Federal Reserve on emerging markets.

Abdel Hamid explained in a press release that “there are questions in the minds of the Egyptian citizen and fears of another wave of inflation, and a new wave of high commodity and food prices following the decision of the Federal Reserve, the US Federal Reserve, to raise interest rates by half a percentage point to curb rising inflation, in The largest US interest rate hike since 2000.

She added that the decision would “put more pressure on countries with large debts, and repay the dollar at a higher value, leading to an increase in demand for the dollar, and then its value against the pound” increase, which of course affects the exchange rate, and will cause more price increases in Egypt and higher inflation rates, as well as the exodus of hot money. ”

The representative called on the government to take precautionary measures to address its repercussions, and to confront the negative consequences of raising the US interest rate, reducing the import bill and committing to government austerity.

economic storm

And through his official page on the social networking site “Facebook”, macroeconomic specialist Hani Tawfiq considered the US Federal Reserve’s decision to raise interest rates to be “the worst economic storm in almost 40 years”.

He said: “There is a decrease in the flow of hot money to emerging markets by more than 40% in just one month, which means that it is difficult for countries in emerging markets, including Egypt, to continue to short-term debt. during the coming period, “noting that” Uncertainty dominates the situation of the global economy at the moment, and no one can predict the coming events. “

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