The Central Bank of Egypt (CBE) has cut interest rates by 1% at the March 28 meeting, according to the investment bank Pharos. The dynamics of the local inflation rate and the foreign ownership of debt instruments enhance the chances of a rate cut in the first quarter of 2019.
Pharos said in a research report that the current monthly reading of January makes a lower bet on the possibility of cutting core interest rates at this week's Monetary Policy Committee meeting.
Faros explained that the environment is ready to reduce interest rates during the first quarter of this year, in light of the increasing demand of foreigners on the treasury tools denominated in pounds, and the subsequent flows of US dollars in Egyptian banks, and the high exchange rate of the Egyptian pound, and all this coincides With forecasts that future inflation figures for the period from February to May will be supportive of the scene, where inflation is expected to reach 11.8% -12.5% per annum in each of the next four months, and therefore expected to drop the basic interest rates by 1% Meeting of March 28 next.
He added that the reduction in interest rates may put some pressure on the Egyptian pound, but in light of the current rise in the exchange rate, will not go the exchange rate above the barrier of 18 pounds by any pressure emerging, and this will not affect inflation rates.
The monthly inflation rate accelerated to 0.8 percent in January 2019, after slowing by 4.1 percent in December 2018. In addition, the annual inflation rate was 12.2 percent in January 2019, compared with 11.1 percent in July 2018. The increase in the rate of inflation Monthly inflation is mainly due to the continued rise in vegetable prices by 3.9% month-on-month, and the price of food grains and bread by 1.8%.
The monthly inflation rate is expected to stabilize at 0.3-0.6% per month and 12.5-11.8% per annum between February and May 2019. Given the expected stability in inflation over the next four months, the chances of a 1% At the March 28, 2019 meeting, and this month's meeting, we see that the possibility of lowering interest rates is weak, and if the Commission took a decision to reduce, the ratio will probably not exceed 0.5%.
In addition, foreign ownership of domestic debt instruments recovered in January 2019 to reach $ 12 billion, according to the Egyptian Ministry of Finance.