Experts Expect CBE To Keep Interest Rates Unchanged

The Monetary Policy Committee is expected to leave overnight deposit and lending rates unchanged in its meeting next Thursday at 9.25% and 10.25% respectively, as well as repo rates at 9.75% and credit and discount rates at 9.5%, experts said.

Bankers attributed this decision to the slow economic growth and market recession as well as the low inflation rate, making no need for raising interest rates. Besides, raising interest rates would increase lending rates and accordingly increase the burden of internal debt which exceeded EGP one trillion.

The Central Bank of Egypt (CBE) has implemented many methods for attracting liquidity instead of raising interest rates such as lowering banks’ reserve requirement ratio from 14% to 10% and offering 28-day repurchase agreements.

Haitham Abdel Fattah, head of treasury department at the Industrial Development and Workers Bank of Egypt, said the slow economic growth and recession will make the Monetary Policy Committee keep interest rates unchanged as there is no need for raising or lowering interest rates.

Raising interest rates will increase the burden of local debt which amounted to more than EGP one trillion due to the increase of returns on treasury bills and bonds, Abdel Fattah added, affirming that changing interest rates amid the current political instability will post negative impact on investments as lending rates will surge.

Amal Kotb, head of asset and risk management at the Union National Bank, said the market recession and the slow economic growth together with the unclear economic situation will make CBE leave interest rates unchanged. Kotb expected the return on treasury bills and bonds to decline after the economy recover.

Bassant Fahmy, banking expert and former consultant to Al Baraka Bank, said the best decision to take amid the current circumstances is keeping interest rates unchanged so as not to increase lending rates. There is no need to change current interest rates in the current period amid the market recession and the low inflation rate which declined from 7.22% in last May to 7.04% in last June, Fahmy noted. Farouk El-Okdah will probably step down as governor of the Central Bank of Egypt this year, making it difficult to take new decisions in the current period, Fahmy added.