Beltone Expects CBE to Keep Interest Rates Unchanged

The Research Department of Beltone Financial Holding expected the central monetary policy committee (MPC) of the Central Bank to keep interest rates unchanged during its meeting on Thursday.

Egypt's annual inflation increased to 4.5% in October from 3.7% in September, beating expectations of 3.9%.

The country's annual rate increased to 4.5% in October of 2020 from 3.7% in the prior month. It was the highest inflation rate since June, due to a faster rise in prices of vegetables and education.

On a monthly basis, consumer prices rose 1.8%, the most since July last year, after increasing 0.3% in the previous month.

Moreover, core consumer prices in Egypt increased 3.9% in November of 2020 over the same month in the previous year.

There is a general tendency for interest rates and the rate of inflation to have an inverse relationship.

In general, when interest rates are low, the economy grows and inflation increases. Conversely, when interest rates are high, the economy slows and inflation decreases

The annual reading of inflation reflects an increase on a monthly basis by 1.8%, compared to a rise of 0.3% in September, supported by a slight increase of 0.1% in food commodity prices compared to their successive decline over the past three months.

Beltone added that the increase came from expectations of a 1.2% rise in the general consumer price index (CPI) on a monthly basis. The monthly increase in inflation was also the result of an increase in the education sector by 20%, with seasonal factors accompanying the start of the school season.

The investment bank expects the inflation to approach between 6% -12% in the Central Bank by the end of 2020, compared to an average of 3.8% during the third quarter of 2020.

The central bank’s previous decision to reduce interest rates by about 350 basis points was not fully aimed to support the local economic activity, as the current global changes support a vision to maintain interest rates unchanged with the importance of maintaining an attractive market for investment with fixed income tools as the Egyptian pound strengthens.

It is noteworthy that the MPC cut, during September, the rate of deposit and lending for one night and the rate of the main operation of the central bank by 50 basis points to record 8.75%, 9.75% and 9.25%, respectively.

The MPC also cut the credit and discount rates by 50 basis points to 9.25%.