Investing.com – Egyptian Finance Minister Mohamed Maait said in his latest statement that the Egyptian state hopes to reach an agreement with the International Monetary Fund within a month or two at most.
The Finance Minister also announced that the Egyptian government is seeking soft loans from China and Japan to provide new financing options and provide hard currency to the markets, Bloomberg reported.
The Finance Minister’s comments come hours before the central bank releases its interest rate decision, which is expected to raise it between 100 to 200 basis points.
The markets are awaiting the size of the change that will occur in the Egyptian pound following the issuance of the interest rate decision.
The Central Bank of Egypt will hold a meeting of the Monetary Policy Committee to settle interest rates on deposit and lending today, Thursday, September 22, according to the Monetary Policy Committee’s meeting schedule for 2022.
The Central Bank of Egypt violated the expectations of experts and analysts at the last August meeting, which indicated that the Central Bank of Egypt raised key interest rates by 1%.
The Central Bank decided at the time to fix the interest rate twice in a row in June and August, after raising it by a total of 3% for the first time from 5 years, including 1% on March 21 in an exceptional meeting of the Monetary Policy Committee, and 2% last May.
Why will interest rise?
Most analysts expected the Central Bank to raise interest rates by between 100 to 200 basis points in the next monetary policy meeting due to the increase in the general and core inflation rate, and the rise in the price of the dollar on which goods reside in customs.
This team believes that raising the central bank will be necessary to create a real return on the customers’ savings in banks after the increase in inflation represented by the rise in prices.
First, the negative return
Bankers say that the real return on customers’ savings currently in banks is negative, which is less than the inflation rate, which makes the value of money low. The real rate of return is the nominal interest rate obtained by the saver or investor minus the inflation rate, which is currently negative to exceed the inflation rates of the current interest levels.
According to market experts, it is necessary for the central bank to raise interest rates to maintain the continued attraction of customers instead of them going to financially untrustworthy entities and people such as the “famous commuter” case and thus falling victim to fraud under the illusion of obtaining a high return.
Second, curb inflation
Economist Hani Genena expected a rate hike at the monetary policy meeting next Thursday, noting that the rate hike is likely to reach 2%.
He added that the reason for the rise lies in the increase in the pace of core inflation in the recent period, expecting an increase in its acceleration to reach about 20% by the end of the year, and it is also expected that the US Federal Reserve will raise interest rates strongly.
Third: Fund loan
Experts said that the most important reason for raising the interest rate will be in order to comply with the requirements of the International Monetary Fund in order for Egypt to obtain the loan that it is seeking to obtain. So there will be a new devaluation of the exchange rates, and consequently an increase in the interest rate.
According to them, this will deepen the pressure on the local currency and increase the difference between the dollar and the Egyptian pound, and therefore it will be necessary to bridge this difference between the two currencies; To attract hot money, which came out of the banking sector in the recent period, again.
Fourth, confronting dollarization
The Financial Group Hermes (EGX:) (EGX: HRHO) said that raising the interest rate is due, in the first place, to curbing the dollarization phenomenon that has re-emerged, after the drop in the exchange rate of the pound against the dollar.
He stressed that this is consistent with the Central Bank’s tendency to gradually reduce the exchange rate of the pound, so that it approaches the real and fair price, which will be determined by developments in reaching an agreement with the International Monetary Fund and responding to its requirements, regarding the flexibility of the exchange rate.
The American rises to a 52-week top, after the Federal Reserve issued its decision to raise interest rates, to trade at the 111 levels against foreign currencies, on top of it.