The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will decide today in its regular meeting on overnight deposit and lending policy rates.
MubasherTrade said, in a report, that, although the consensus points to fixing overnight deposit and lending rates, it expects the MPC to cut the rates by 0.5% for the following reasons:
First: Inflation rates started to ease down, although they are generally high. Core inflation rate was down to 0.55% MoM in October, compared to 0.87% in September. It also declined from 9.15% YoY in September to 8.47% in October. Although the headline inflation rates were higher in October than September, we believe it will not continue to be high.
Second: MubasherTrade believes the interest rate cut will be pursued in order to encounter the rate hike that took place in July 2014, which was intended to mitigate the effects of tight fiscal policy in terms of lower subsidies and higher taxes. Earlier in 2013, the MPC cut the rates by 1.5% over three meetings, in order to promote economic growth and investments.
“However, the MPC might refrain from cutting the rates in order to avoid placing higher pressure on the foreign reserves. In case the rate cut step is not taken at today's meeting, we believe it can take place in Q1 2015,” said MubasherTrade.
In its meeting held on October 16, 2014, MPC decided to keep the overnight deposit rate, overnight lending rate, and the rate of the CBE’s main operation unchanged at 9.25 percent, 10.25 percent, and 9.75% percent respectively. The discount rate was also kept unchanged at 9.75 percent.
MubasherTrade said, in a report, that, although the consensus points to fixing overnight deposit and lending rates, it expects the MPC to cut the rates by 0.5% for the following reasons:
First: Inflation rates started to ease down, although they are generally high. Core inflation rate was down to 0.55% MoM in October, compared to 0.87% in September. It also declined from 9.15% YoY in September to 8.47% in October. Although the headline inflation rates were higher in October than September, we believe it will not continue to be high.
Second: MubasherTrade believes the interest rate cut will be pursued in order to encounter the rate hike that took place in July 2014, which was intended to mitigate the effects of tight fiscal policy in terms of lower subsidies and higher taxes. Earlier in 2013, the MPC cut the rates by 1.5% over three meetings, in order to promote economic growth and investments.
“However, the MPC might refrain from cutting the rates in order to avoid placing higher pressure on the foreign reserves. In case the rate cut step is not taken at today's meeting, we believe it can take place in Q1 2015,” said MubasherTrade.
In its meeting held on October 16, 2014, MPC decided to keep the overnight deposit rate, overnight lending rate, and the rate of the CBE’s main operation unchanged at 9.25 percent, 10.25 percent, and 9.75% percent respectively. The discount rate was also kept unchanged at 9.75 percent.
Source:
Mubasher Exclusive
