Egypt: Beltone opposes interest rate increase

In a note published, July 20, 2014, the Beltone Financial investment firm said that the decision of the Monetary Policy Committee of the Central Bank of Egypt, to raise key rates of 100 basis points on average, will impact negatively an economy that is already quite weakened.

On Thursday 17 July, the CPM has surprised many analysts with raising refinancing rates, rates of deposits and rates of major intervention by the Central Bank at respective rates of 9.25% 10.25% and 9.75%. In the same context, the CPM has decided to increase to 9.75% the discount rate.

This decision will make it harder to anticipate the inflation rate which most experts expect to be two digits after the decision by the Egyptian government to cut fuel subsidies, and the risk of price increases that may result. Beltone Financial has a position it stands for some time, namely that higher prices in Egypt are not fueled by strong demand from consumers with relatively large financial resources.

It noted that the phenomenon of rising prices is driven by declining production capacity.

Beltone believes that the Central Bank (CBE) should wait and observe the effect on the long-term elimination of subsidies, to see if pressure was exerted on the money market before deciding on a rate hike.

On the Egyptian Stock Exchange, the Egyptian capital market, the reaction was swift. EGX 30, the main index of the market, finished in red Sunday and continued its drop this Monday, July 21 at the opening of the session, with a decline of 0.68%.

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