EUR 9.24 For Business Accounts Only

IT IS NOT ABOUT RAISING INTEREST RATES ANYMORE… FX STABILITY IS THE KEY DRIVER IN ATTRACTING USD HOT MONEY NOW...

​In accordance with the recent decision to float the Egyptian Pound that took place at the beginning of the current month, the CBE has further decided to raise the corridor rates by 300bps for lending and deposit overnight rates to reach 15.75% and 14.75%, respectively. In addition, the press release announced by the CBE that day has mentioned that the CBE has agreed with the Ministry of Finance to gradually phase out the monetary financing of budget deficit over the coming months. We have previously referred that raising rates in that context was not mainly targeting maintaining peoples' purchasing power facing shooting levels of inflation post the floatation, in our view, as such policy has proven to have null effect achieving such target as people are already characterized by low levels of marginal propensity to save accompanied with low levels of wages and incomes), but rather, hiking rates is justified by increasing the competitiveness of the Egyptian market to attract portfolio investments in the short run post the decision of the floatation; especially when knowing that foreign customers’ investments in T-bills have dropped dramatically post January 2011; i.e. they have fallen from a peak of 27.5% of total outstanding balance of T-bills in 2007 (around USD 6bn by that time) to no more than 0.3% post 2011 (USD 180mn).