Dear followers everywhere, welcome to a new analysis from Banker on the latest events and developments in the economic arena today, Thursday, November 21, 2024.
The central bank’s decision to maintain interest rates
A while ago, the Monetary Policy Committee of the Central Bank of Egypt announced at its seventh meeting this year that the overnight deposit and lending interest rates and the Central Bank’s main operation rate would be fixed at 27.25%, 28.25%, and 27.75%, respectively.
The Monetary Policy Committee also decided to keep the credit and discount rates at 27.75%.
The Central Bank explained the reasons for the stabilization decision as a reflection of the latest developments and expectations at the global and local levels since the previous meeting of the Monetary Policy Committee.
The decision to fix interest rates was not a surprise and was in line with the expectations of investment banks and economists, and this is what we expected here at Banker, which suggested stabilizing interest rates as part of plans to confront inflation and in light of the great financial stability, the historical decline in debt, and the significant rise in cash reserves.
We are thinking, Your Honor, that the Central Bank has previously raised the interest rate by 19% at once on 11 occasions during the last two and a half years, including 8% in 2022 on 4 occasions, 3% in 2023 on two occasions, and 8% during the current year on two occasions, including 6% at once last March.
Regarding the reasons for the central bank’s fixation of interest rates, from the point of view of experts, the main reason is that the central bank expects in its latest monetary policy report that the risks of inflationary pressures will increase due to financial control measures, namely partially lifting subsidies on gasoline, diesel, and electricity. This was an incentive to keep interest rates at levels below changing.
Economists also see that stabilizing the interest rate and not reducing it means continuing to attract hot money around the world, which invests in treasury bills and bonds, and that any reduction in the interest rate will have an adverse effect on the flow of hot money.
Among the reasons is that the Central Bank is seeking to address inflation with a flexible and cautious policy and without rushing the pace of interest reduction, which is likely to begin to decline in 2025.
The Central Bank announced that it will closely monitor economic conditions and developments, and stressed that it will not hesitate to use its monetary tools to achieve price stability when…
The Monetary Policy Committee confirmed that it will continue to announce the inflation target rates that started in 2017, in line with the targeted downward path of inflation rates. The inflation targeting policy succeeded in reducing inflation rates until the emergence of the recent global shocks.
Regarding the impact of the Central Bank’s decision on the exchange, gold, and commodity markets…it is most likely that a state of stability will prevail in all markets, because the Central Bank’s decision was expected, and therefore nothing new will affect gold and the price of the dollar, because each market is governed by its own law, which is supply and demand for the price of the dollar, and the inverse law between Gold and the interest rate, and those who say that the prices of the yellow metal increase whenever there is a reduction in the interest rate, and vice versa.
Keeping up with expectations
In conclusion, the stabilization of the interest rate today, which agreed with expectations, indicates a very important thing, which is that the Egyptian market entered a state of stability and settled in the warm region without major shocks or crises, despite the international tensions and conflicts in the Middle East, which had a major impact on the Egyptian economy, especially on the Canal. Suez.. However, the Central Bank’s decision is considered a certificate of confidence in the performance of the Egyptian economy and the management of markets in accordance with the laws of the global market
