2024/06/04

Central Bank rate cut predicted by Experts: 3% reduction by year-end

Experts and bankers had expected that the Monetary Policy Committee of the Central Bank of Egypt would take a decision to reduce interest rates by a rate ranging between 2% and 3% before the end of 2024.

Experts stated that the current interest rates are very expensive for credit and investment, placing a significant burden on the state budget. This suggests a need to reduce the 6% rate which had been raised earlier, which could happen, according to their estimates, in two stages, by 1.5% at each stage, specifically in the last quarter of the year. It is the same as what Standard Chartered Bank recently expected, as it said that the central bank may reduce interest rates starting from the third quarter of this year.

Experts believe the Central Bank may adjust its inflation rate targets. Current inflation remains distant from the bank's goal, noting that some of the causes of inflation still exist

The recent government decision to lift bread subsidies and expectations of higher electricity and fuel prices are seen as contributing factors.

These expectations are largely consistent with the Monetary Policy Committee’s decision to set target inflation rates during the coming period at the level of 7%, or two percentage points, on average, during the fourth quarter of the current year.

Experts and bankers commented on the Central Bank's decision to maintain interest rates in May's Monetary Policy Committee meeting. Some view this as a possible precursor to a future rate cut.

They also highlighted the connection between inflation expectations and the US dollar exchange rate. A stable or falling dollar price could signal a potential decrease in inflation, while a rising dollar price could indicate the opposite.

In its meeting last February, the Monetary Policy Committee of the Central Bank had raised the overnight deposit and lending rates and the Central Bank’s main operation rate by 200 basis points, to reach 21.25%, 22.25% and 21.75% respectively. The arrangement also raised the credit and discount rates by 200 basis points to 21.75%.

Then, it resorted to further monetary tightening, raising, in its extraordinary meeting, on March 6, the overnight deposit and lending rates, and the central bank’s main operation rate. By 600 basis points, reaching 27.25%, 28.25%, and 27.75%, respectively. The credit and discount rates were also raised by 600 basis points, reaching 27.75%.

At the May 23rd meeting, they were kept at Interest rates remain unchanged, remaining at their current levels.