How will the money market react to the ECB’s decision to raise interest rates?

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The Central Bank of Egypt (CBE) decided to raise interest rates by 200 basis points at its meeting last Thursday in response to rising inflation levels, coinciding with the Federal Reserve’s global trend US to raise interest rates.

Despite the decision to raise interest rates as part of a policy of monetary tightening, the Egyptian Stock Exchange (EGX) ended its trade last Thursday on a positive note, with the main index, the EGX30, having closed higher. down 0.79% to 10,545 points, while the EGX70 EWI index fell 0.64% to close at 1,832.7 points.

Mohamed Farid – head of EGX – said that the rise in interest rates globally has caused a shock in financial markets due to the negative consequences of the increase in interest on the fall in value shares offered on the stock exchange.

Previously, Farid explained that central banks resort to raising interest rates to allow them to manage the volume of liquidity, control inflationary pressures and motivate customers to invest in EGP through certificates and treasury bills, but this negatively affects the decline in value. shares like other assets.

He pointed out that despite recent developments, the stock market remains the most effective tool against upward price turbulence in the short to medium term.

Amr Al-Alfi – Head of Research Sector at Prime Securities Brokerage – expects stock trading to be positively affected due to the positive impact of the decision on Commercial International Bank (CIB) share, which has the largest relative weight in the main EGX index.

CIB’s stock rose 3% in last Thursday’s trading session to EGP 41.7 per share.

Al-Alfi added that an interest rate hike is expected in any case, stressing that banks will benefit directly, while highly indebted companies will be affected.

He added that the industrial sector will be negatively affected by the decision to raise interest, however, it is possible that the CBE will launch dedicated initiatives to support the sector and encourage investment.

Mostafa Shafei – head of research at Arabia Online Securities – said the decision to raise interest rates by 200 basis points by the CBE will negatively affect industrial sectors, especially those with high leverage.

Shafei added that among the largest listed industrial companies negatively affected by the decision include Ezz Steel, Qalaa for Financial Investments and Elsewedy Electric due to their additional burden of high cost of debt.

He pointed out that the monetary tightening policy leads to a slowdown in the pace of investment and reduces the appetite of investors to inject new investment due to the high cost of borrowing.

Furthermore, he said that the non-banking financial sector is one of the main beneficiaries of rising interest rates and that waves of inflation lead to an increase in demand for installment transactions, explaining that lenders in general – like the banking sector – are the beneficiaries. , but it is necessary to know the impact of the offer of savings certificates at 18% on the rest of the banks to determine the magnitude.

Hany Genena — an economist — believes that the decision to raise interest rates by 2% was expected over the past few days and would not negatively affect EGX, and if the upcoming Sunday session saw a decline, this would be due to the impact of the decline of the American stock market and European stock markets.

He pointed out that the decision has a positive impact on the EGX and is a good step to reassure Egyptian, Arab and foreign investors to return to the stock and bond markets.

Moreover, he pointed out that the impact of rising interest rates on the industrial sector is not catastrophic, especially since many companies do not have large debts, in addition to owning many assets, explaining that companies that have debts to banks will be able to pass on the increase in interest to the consumer.

Geneina also said that the industrial sector is more concerned about the stability of the exchange rate than about rising interest rates, and that any decision taken by the central bank to maintain the exchange rate is positive for the sector.



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