THIS MORNING: Central Bank of Egypt to decide on interest rates today + Fed raises rates by 75 bps for third successive meeting
The question on everyone’s lips this morning: Will the Central Bank of Egypt go through with its third rate hike of 2022? Seven of eight analysts and economists we’ve talked to expect the Monetary Policy Committee to raise rates during its meeting today as inflation rises and the EGP continues to weaken.
Yesterday’s rate-hike by the Federal Reserve (more on that below) puts Egypt under “mounting pressure,” Hany Geneina, a long-time market watcher who is now an adjunct professor of business administration at AUC, told Bloomberg Asharq yesterday (watch, runtime: 6:34). Tighter US monetary policy makes it more difficult for Egypt to attract foreign investors back to the country and could compel us to raise interest rates by 2-3 percentage points by 1Q 2023.
EGP WATCH- The EGP eased further against the greenback to hit EGP 19.54 yesterday from 19.49 a day earlier. The currency has now fallen almost 24% against the USD since the devaluation in March and is closing in on the record low of 19.56 set in December 2016, when it overshot against the greenback following that fall’s sharp devaluation. The currency has fallen 1.8% since Hassan Abdalla was appointed to head up the central bank on 18 August.
Expect the EGP to fall against the greenback further amid “external and internal pressure,” Geneina said, estimating a plunge of 10% to 15% to reach EGP 22-23 per USD 1. “This is a difficult phase for Egypt and is close to 2016’s [deval conditions],” he said.
It’s not all a gloomy outlook: A diversification of FX sources through the sought IMF loan, a powerful recovery in the tourism sector and the government’s sale of stakes in major companies would help overcome the crisis, he said.
Africa’s biggest economies jump on the tightening train: The central banks of Nigeria and South Africa are also likely to tighten monetary policy this week to ease spiraling prices, Bloomberg reports. The South African Reserve Bank holds its policy meeting later today and Nigeria’s central bank is up tomorrow.
PSA- Clock ticking for ClimaTech Run: Tech entrepreneurs that address climate and environmental issues have until today to apply for the ClimaTech Run competition, which offers startups a top award of USD 100k and the chance to pitch their product at COP27. Ten startups will be shortlisted in October to pitch at the global climate summit in November.
THE BIG STORY ABROAD-
Fed delivers third successive jumbo rate hike: The Federal Reserve raised interest rates by 75 bps for the third successive meeting and indicated that it would continue its aggressive stance in coming meetings as it battles to curb inflation. Fed officials unanimously chose to raise the central bank’s policy rate to a range of 3-3.25% — its highest level since January 2008 — and almost all forecast rates to hit 4-4.5% by the end of the year.
For first time, Powell admits chance of recession: “No one knows whether this process will lead to a recession or if so, how significant that recession would be,” Fed Chairman Jerome Powell said during his post-meeting presser. “The chances of a soft landing are likely to diminish” because policy needs to be “more restrictive or restrictive for longer.” Powell also spoke openly about the need for a “correction” in the housing market and warned that rising unemployment in the months ahead would cause “pain.”
Markets got the message: US stocks whipsawed following the announcement, with the S&P 500 climbing as high as 1.3% before crashing back to end the session 1.7% in the red. Yields on US two-years surpassed 4% for the first time since 2007 while another part of the yield curve inverted, an indicator of a coming recession. Oil fell below USD 90 a barrel, the USD hit a fresh two-decade high, and BTC came close to falling below USD 18k for the first time since 2020.
It’s a sea of red in Asia this morning, with the Hang Seng (-2.1%) and the Kospi (-1.4%) leading the declines. The sell-off looks set to continue in Europe and the US later today, according to stock futures.
COUNTDOWN TO COP-
Climate change remains the most serious existential challenge faced by humanity, President Abdel Fattah El Sisi told a climate roundtable on the sidelines of the UN General Assembly yesterday (watch, runtime: 7:25). In a pre-recorded speech, the president said that the repercussions of climate change are worsening by the day as temperatures soar globally, noting the recent devastating floods in Pakistan and the forest fires in Europe over the summer. El Sisi reiterated his call for the international community to meet the pledge to provide USD 100 bn in funding every year to help developing countries mitigate and adapt to the effects of climate change.
Denmark just became the rich nation to pledge loss + damage funds to countries in the Global South — but is it enough? Denmark has earmarked DKK 100 mn (USD 13.3 mn) in loss and damage aid to countries most impacted by climate change, with a focus on Africa’s Sahel region, it said in a statement. The move marks the first time a developed nation has offered compensation for the impact of emissions on poorer countries — but activists say the sum pales in comparison to the real price tag of the damage sustained by developing countries, the Washington Post writes.
Major Wall Street banks are threatening to ditch Mark Carney’s green alliance: JPMorgan, Morgan Stanley and Bank of America are among those who could pull out of the former Bank of England governor’s Glasgow Financial Alliance for Net Zero (GFANZ) due to what they say are legal risks associated with meeting strict decarbonization rules, the Financial Times reports, citing top execs. “I am close to taking us out of these global green commitments,” one senior exec said. “I’m not going to allow third parties to create legal liabilities for us and our shareholders. It is immoral and irresponsible.” GFANZ seeks to tackle climate change from within the financial system by getting members to decarbonize their combined USD 130 tn in assets.
CIRCLE YOUR CALENDAR-
Our friends at HSBC are hosting an energy transition webinar series next Tuesday-Thursday, 27-29 September. The series will look at the “latest climate analysis in relation to the global energy market and transition to net zero” in six different sessions covering energy security, what is required to ensure the success of COP27, financing and investment needs for the energy transition, and the scaling up of renewables in the region, among other topics. You can register for the series here.
WANT MORE on the region’s energy transition? Catch this op-ed in EnterpriseAM by HSBC’s Group Head, Center of Sustainable Finance and Head of Climate Change Middle East, North Africa and Turkey, Zoe Knight on to the capital that’s needed to help drive that shift.
A Spanish business delegation will be in town next Tuesday and Wednesday (27-28 September) for the Egypt-Spain Multilateral Partnership Forum, organized by the Spanish Institute for Export and Investment, according to a press release (pdf). The two-day conference will include seminars and panel discussions on trade and investment in transport, energy, and water with Egyptian ministers and representatives from government bodies, alongside officials from international financing institutions and Spanish Secretary of State for Trade Xiana Méndez Bértolo. The agenda for the conference is available here (pdf).
Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.
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