The upcoming Monetary Policy Committee meeting of the Central Bank of Egypt is significant as it will be the first since Egypt signed an expanded loan agreement with the International Monetary Fund in March, worth eight billion dollars. Analysts who participated in a Reuters poll expect the Central Bank to maintain overnight interest rates at this meeting. However, one analyst predicts a 150 basis point cut in interest rates.
Despite this, interest rates remain below the inflation rate in Egyptian cities, which was 32.5% in April, down from a high of 38% in September. Monica Malik of Abu Dhabi Commercial Bank believes that inflation needs to decrease further before the Central Bank can consider lowering interest rates, as real interest rates are still negative.
As part of the IMF agreement, Egypt allowed its currency to depreciate to less than 50 pounds to the dollar after maintaining it at 30.85 for a year. The Egyptian pound has since risen to about 46.6 pounds to the dollar. James Swanston of Capital Economics notes that there has been a 5% increase in the pound since the last meeting alongside a 9.4% year-on-year price increase and slowed economic activity, making an interest rate hike unlikely. The IMF report highlighted that previous increases caused growth to slow down from 6.7% in 2021-2022 to 3.8% in 2022-2023.
Overall, while analysts expect the Central Bank to maintain overnight interest rates at this meeting, they believe that inflation needs to decrease further before any potential cuts can be made. Additionally, economic factors such as currency fluctuations and slow growth may also play a role in determining whether or not interest rates will be hiked again.
In conclusion, as Egypt continues its economic reform process under an expanded IMF agreement, it remains uncertain whether or not interest rates will continue on their current path of increases or if cuts will eventually be made depending on various factors such as inflation and economic growth trends.
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