Experts anticipate effects of rising US interest rates on Egyptian economy

Economic analysts and investment banks have seen that the Central Bank does not need to raise interest rates urgently, unlike some emerging markets that have been forced to do so because their markets are fully pegged to the US dollar, leading to a rise in interest rates. Egypt expects. in the range of 1 and 2%.

Analysts’ view was also a reflection of the US Federal Reserve, a few days ago, which raised interest rates by half a percentage point, the largest increase in a single in two decades.

They suggested that the market would see limited flexibility in the price of the local currency, reflecting the pressure it has recently experienced due to the current struggle with high inflation and the growth of commodity prices worldwide as a result of the Russian-Ukrainian crisis.

They expected a rise in inflation rates from last April, and this exceeded the Central Bank’s targets at 9%, reflecting the rise in basic material prices.

Analysts have suggested that the government complete the economic reform plan, which this time may include some austerity measures at government level, in addition to some commodities that are still being subsidized, such as fuel, bread and fertilizers.

Hani Genena, an economist, said the US Federal Reserve’s decision is expected, and therefore it will not contribute much to the scene in the local market, which has been more affected by imported inflation in commodity prices.

Genena expects Egypt to announce a austerity plan that includes a focus on specific spending priorities.

It is likely that the state’s plan will include focusing on the completion of outstanding foreign exchange priority-generating projects, such as the Grand Egyptian Museum.

He said austerity could gradually extend to the prices of some commodities that are still subsidized, such as fuel, a loaf of bread and fertilizer.

Geneina expected the state to move through a plan over five years after a gradual increase in the prices of subsidized bread, as happened in electricity, due to a significant rise in wheat prices worldwide.

Genena suggested that the Central Bank would raise interest rates significantly at the next meeting, between 1.5 percent and 2 percent, due to high inflation rates.

He pointed out that raising the interest rate is a useful step to attract investment back into debt instruments, but it is not enough, and pointed out that the return of foreigners is subject to the approach of an agreement with the IMF on an additional funding package.

He expected a flexibility in the local exchange rate in the range of 4 and 5% from current levels to the end of the year, explaining that the current savings boats are sufficient to lure investors away from speculation in the price of the dollar .

Sarah Saadeh, Senior Analyst for Macroeconomics at Investment Bank “CI Capital”, believes Egypt does not need to raise interest rates urgently, unlike the Arab countries whose currencies are pegged to the US dollar and follow the monetary policy of the Federal Reserve .

“Saada”: 10.8 and 11% target inflation rates for April … and we rule out a sudden devaluation of the pound

She expected the Central Bank to raise interest rates to curb inflation, which exceeded targets last March, to reach 10.5 per cent, and the inflation rate to fluctuate from 10.8 per cent to 11 per cent in April.

Sarah Saadeh suggested that interest rates would rise from 1 to 1.5 percentage points at the next meeting, and that the increase would reach 3 points throughout the year 2022, emphasizing that expectations are dependent on inflation rates for the month of April.

She explained that global inflation has a greater impact on the domestic market than foreigners’ withdrawal from debt instruments, with the expectation that the agreement with the IMF will not significantly affect low incomes.

She stressed that there is pressure on the local currency with the continued demand for the dollar, which precludes a sudden devaluation of the local currency, but the market may experience limited flexibility in the coming period from current price levels.

Esraa Ahmed, a macroeconomic analyst at Al-Ahly Pharos Investment Bank, said the monetary tightening in the major central banks contributes to the state of uncertainty which is detrimental to the economy in general, which is detrimental to investment rates.

It believes that this – in addition to other factors – could hurt growth rates, as it could drop to 5.1% in 23/2022 compared to about 5.5% we estimate in the current financial year.

She indicated that the Central Bank of Egypt with world pressure might prefer to adopt the traditional policy of raising interest rates to curb inflation, explaining that the need to increase two more percentage points during the current year, but the rate of increase may differ according to what the Central Bank deems appropriate, either a sharp increase in one meeting or more than once.

She stressed that the exchange rate is tainted with a very high level of uncertainty, and this can not be predicted, due to the overlap of several factors beyond the economic scope that control its course, but we can generally say that it depends on the course of global conditions and the investors’ view of emerging markets in general.

She stated that if geopolitical tensions and fears for the Chinese economy also ease, some dollar flows could return to emerging markets, and if accompanied by international Gulf-Monetary Fund funding, fears related to the dollar could calm down and then the pound can recover part of its recovery, but it will take months. Then we can see the dollar at levels above EGP 17 or above EGP 18, with a small margin.

She added: “But if this global crisis continues and tensions escalate, it is very likely that the pound will go through further declines, which could reach the rand of 20 pounds against the dollar in the medium term, given the sensitivity of the Egyptian economy to commodity price changes and the accelerating monetary tightening worldwide. ” But it remains speculation, because economic factors

It not only controls, but it relates to the expectations of the market and its “psychological state”, so to speak, in addition to other factors.

I expected overpayments from workers abroad to recover, especially with the recovery in oil prices and their flow to the Gulf countries, but there is a fear of the emergence of the black market with uncertainty over the exchange rate, which may deter some of transfer through official channels, which “hide” some dollar flows from the balance Egyptian payments.

“JP Morgan” shows a neutral view of the market .. and the obligations of the Gulf Cooperation Council allow stability

In turn, JPMorgan in its latest report expressed a neutral view of the local market, expecting the central bank to continue to raise interest rates by 75 basis points during the May meeting.

He expected the inflation rate in Egypt to remain at normal levels at least until the first quarter of 2023, which would require further monetary tightening measures from the Central Bank.

The bank was of the opinion that the foreign direct investment promises of the Gulf Cooperation Council countries are a major development that will allow for some stability in the near term, in conjunction with the agreement on a possible financing program with the International Monetary Fund.

Contrary to previous opinions, the BNP Paribas Research Unit expected the central bank to raise interest rates by about two percentage points in an emergency before the May 19 meeting, and to raise interest rates again by 100 basis points to 11.25% for deposit and 12.25% For lending between the months of August and September.

BNP Paribas: Increased investment in treasury bills and $ 10 billion, the expected volume of financing with the IMF

In a report obtained by Al Mal, the bank suggested that the return on investment in Egyptian treasury bills would increase by the last quarter of the year.

He stressed that Egypt must enter into a financing agreement with the International Monetary Fund to motivate foreigners to enter the local debt market, with the expectation that the Fund’s support will reach about $ 10 billion or more.

He said demand for Egyptian treasury bills rose 2.5 times during last April’s auction, but the yield is still less profitable compared to the beginning of the year.

Leave a Comment