By Ahmed Allam
Cairo – Mubasher: The Central Bank of Egypt (CBE) is forecast to hike key interest rates at its meeting on 22 September to combat the country's soaring inflation, according to a survey carried out by Mubasher.
Pharos Research agency and Hany Farhat, senior economist at CI Capital, expected the Monetary Policy Committee (MPC) to raise interest rates by 1% on Thursday to face the inflation spike that will be induced by the value-added tax (VAT).
"We believe that the MPC will raise policy rates by 1% during its upcoming meeting on September 22nd, mostly due to inflationary concerns and in preparation for devaluation, in order to increase the attraction of holding EGP versus USD and in a bet to attract foreign fund inflows into the EGP fixed income market, post-devaluation", Pharos Research said.
The research firm further anticipated that inflation and currency defense will drive another rate hike by 1% on 17 November in spite of growth concerns.
"While current growth dynamics are not supportive of a hike in rates, it will be implemented with the intention to resolve currency shortage, a key obstacle for GDP growth", the research firm added.
Egypt's consumer price index (CPI) is estimated to stand at 10-11% by 2015/16 and 7-8% by 2018/19, according to official data released earlier.
Capital Economics pointed out that the MPC will likely increase interest rates by 50 points to 12.25% as technical indicators assure headline inflation will not slow down over the coming twelve months, according to a research note.
The research note further revealed that the government will have to cut more subsidies and devalue the pound as part of the International Monetary Fund's (IMF) $12 billion loan agreement.
On the background of the IMF loan facility, Prime Holding proposed two scenarios for Egypt's key interest rates after receiving the first tranche, according to a report on Sunday.
First, the government may reduce budget deficit by improving growth rates rather than inflation. Accordingly, the MPC will tend to steeply lower the rates for attracting more investments that by turns will foster GDP growth and decrease interest payments on domestic debt.
In case a deflationary policy is applied, the CBE would be prompted to up interest rates so as to encourage savings and to absorb excess liquidity, which will shackle the government at decreasing its investment budget and so is budget deficit.
Prime believes that the bank of Egypt will raise the rates by 100 points tomorrow, the report showed.
Translated by Ahmed El-Sayed Ali
