Egypt anticipates repercussions of rate hike on economic activities – Dailynewsegypt

The Egyptian Market Anticipates Repercussions of Central Bank’s Decision

The Egyptian market is closely monitoring the impact of the Central Bank of Egypt’s (CBE) decision to raise the interest rates of the Egyptian pound. This decision will have significant implications for various economic activities, the stock market, and public debt instruments.

Interest Rate Increase by CBE

Last Thursday, the CBE announced an increase in the basic interest rates. The new rates are set at 19.25% for deposits, 20.25% for lending, and 19.75% for the credit and discount rate and the price of the main operation at CBE.

Impact on Banks and Loan Products

The Assets and Liabilities Committees (ALICO), responsible for determining interest levels in banks, will convene this week to discuss the implications of this decision on their savings and loan products.

Following CBE’s decision, interest rates on variable-return certificates and certain loan products linked to the basic interest rates have automatically increased.

It is worth noting that there are numerous variable-return certificates and loan products in the Egyptian market.

Reactions to Treasury Bills

The market is eagerly awaiting the response to the return of treasury bills after CBE’s decision. On behalf of the Ministry of Finance, the Central Bank is scheduled to offer two tenders for treasury bills worth EGP 40bn on Sunday. The first tender is valued at EGP 22.5bn for a period of 91 days, while the second tender is valued at EGP 17.5bn for a period of 273 days.

Prior to the interest rate increase, the average return for the last 91-day bills tender was 23.553%, and for the last 273-day bills bid, it was 24.043%.

Impact on Public Debt and Budget Deficit

Raising the interest rate by 1% for one year is expected to increase the benefits of public debt in the general budget by EGP 28bn, according to Fakhry El-Fiqqy, head of the Plan and Budget Committee in the Egyptian Parliament.

The Ministry of Finance’s financial statement on the state’s general budget for the years 2023/24 reveals that a 1% increase in interest rates will raise interest payments by about EGP 70bn. This increase in interest rates, expected during the fiscal year 2023/2024, will have a negative impact on the budget deficit.

The Ministry of Finance has announced its intention to borrow EGP 1.106tn from the local market in the first quarter of the fiscal year 2023/24. This borrowing will be used to pay previous dues for debt instruments and finance the state’s general budget deficit.

Anticipating Inflationary Pressures

Mohamed Abdel-Aal, a well-known banking expert, explains that CBE increased interest rates by 1% to anticipate expected inflationary pressures in the coming period. CBE expects inflation rates to reach their peak in the remaining months of this year, with a subsequent decline towards the target inflation rates of 7% (±2%) on average during the fourth quarter of 2024.

Abdel-Aal further suggests that CBE’s statement indicates the possibility of another interest rate increase this year. He predicts that this increase could reach 2% over the remaining four months of the year, with a 1% increase in two separate meetings.

The Monetary Policy Committee (MPC) will hold three meetings this year, scheduled for 21 September, 2 November, and 21 December.

Despite the global decline in commodity prices, CBE believes that the wave of inflation will reach its peak in the remaining months of this year. This may be attributed to Russia’s decision to withdraw from the grain export agreement with Ukraine, which could impact the prices of wheat and other commodities.

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 1: No Poverty
• SDG 8: Decent Work and Economic Growth
• SDG 10: Reduced Inequalities
• SDG 16: Peace, Justice and Strong Institutions

The issues highlighted in the article, such as the impact of the Central Bank of Egypt’s decision to raise interest rates on economic activities, the stock market, and public debt instruments, are connected to the SDGs mentioned above. These SDGs address poverty reduction, economic growth, reducing inequalities, and strengthening institutions.

2. What specific targets under those SDGs can be identified based on the article’s content?

• Target 1.3: Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable
• Target 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7% gross domestic product growth per annum in the least developed countries
• Target 10.4: Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality
• Target 16.6: Develop effective, accountable and transparent institutions at all levels

Based on the article’s content, these specific targets can be identified. The decision to raise interest rates by the Central Bank of Egypt can have implications for poverty reduction, economic growth, reducing inequalities, and institutional development.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

No indicators are mentioned or implied in the article that can be used to measure progress towards the identified targets.

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Source: dailynewsegypt.com

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