By Mahmoud Salah and Mostafa Adel
Cairo – Mubasher: Egypt's Monetary Policy Committee (MPC) is forecast to hold interest rates steady in Thursday's meeting after putting up key interest rates by 100 basis points on 16 June, analysts told Mubasher.
Policy rates-raising could hamper the government plan to attract more investments, which is part and parcel of the country's economic reforms that will be laid on the table for the International Monetary Fund's $12 billion loan, said Prime Holding macroeconomist, Eman Najam.
Therefore, the Central Bank of Egypt (CBE) is likely to keep interest rates unchanged at June's figures as "no investor can be driven to a market with soaring interest rates", Najam added.
Likewise, the former CBE governor Ismail Hassan called the monetary committee to keep interests rates on hold unless actual data provide otherwise.
"At the present time the bank is required to alleviate companies' borrowing burdens and to encourage effective investments for expanding production and putting an end to the done-on-purpose dollar dilemma", the former governor voiced his grounds.
According to a research note by Prime Holding, increasing rates can be justified by fighting expected inflation and the devaluation of the Egyptian pound, along with decreasing the rates of dollarization. However, such decision will probably deepen the government’s debt services and budget deficit, "hindering the main objectives of the recent decision taken by the monetary authority in terms of devaluing the Egyptian Pound to attract FDIs and boost the level of local investments."
Unlike the above voices, Beltone Research and the chairman of Industrial Development & Workers Bank (IDWB) forecasted the CBE to hike rates.
"To manage aggressively increasing inflation and the local currency's drops against US dollar, the central bank may raise key interest rates by no more than 50 basis points", said the IDWB chairman Maged Fahmy.
The research agency clarified that increasing interests will represent a "knockout blow" to all currency speculators as they will hasten to sell their stocks of the hard currency .
"The US dollar's fair value against the Egyptian pound ranges from EGP 11 to EGP 12 and it can be nearing EGP 10 currently, especially if the cash flows of the dollar-dominated treasury bills see a remarkable recovery,” according to a research note.
Moreover, this move, if taken, will be deemed a good initiative to facilitate the loan talks, Beltone added.
The overnight deposit rate, overnight lending rate, and the rate of the CBE’s main operation are still standing at 11.75%, 12.75%, and 12.25% respectively.
Translated by Ahmed Elsayed Ali
