Mounting uncertainty over US and UK interest ratesComments
This week, Business Middle East takes a look at interest rates in the UK and the US and when there could be a hike.
In Business Snapshot, we analyse what Egyptians are expecting from the new Suez Canal.
Interest rates: timing is everything
Since the end of last year, America’s Federal Reserve has repeated its intention to raise interest rates, but has not made it clear when it will do so.
The Bank of England recently surprised some investors by sounding relaxed about keeping rates at a record low 0.5 percent. It has pointed to a possible rise early next year.
Governor Mark Carney has said they cannot be more specific about exactly when it will happen, highlighting that it will depend on economic developments and data.
It is the same stance as that of the Federal Reserve’s Janet Yellen, who has also linked rate hikes with economic data.
Inflation rates are still low. In the US, it stands at 0.2 percent, and in the UK, it’s zero.
After the latest US jobs report, economic analysts said the Fed might raise interest rates in September. And America’s next move could prove to be the biggest influence on when the UK chooses to act.
Nour Eldeen al Hammoury, chief market strategist at ADS Securities, analysed the thinking around interest rates.Daleen Hassan, euronews:
“The Bank of England is acting in a similar way to the Fed over interest rate hikes, and there’s a lack of clarity about timing. Who do you think will take the first step, who’s best placed?”Nour Eldeen al Hammoury:
“It’s early to talk about raising rates, for both banks. Last year, the Fed promised the world to raise rates during the next couple of meetings. At first they said March, then delayed it to June, then September.
“Now this might be delayed from September to December, or maybe next year.
“In the UK, the Bank of England might be more transparent than the Fed, and we have seen that in the latest statements and minutes of meetings.
“In the meantime, the only missing part before raising rates is inflation – which remains lower and is likely to remain lower for sometime due to the decline in oil prices.
“Therefore, the Bank of England is in better shape to raise rates before the Fed. However, the question remains over whether inflation will rise to let the banks raise rates.”Daleen Hassan, euronews:
“We mentioned last week that sterling remained strong. Do you think that the market is starting to price sterling on the basis of an incoming rate hike? Is that the same scenario as the dollar?”Nour Eldeen al Hammoury:
“Not yet. However, the British Pound showed a notable stabilisation in the past three weeks. The pound against the US dollar traded within a range of 1.53 to 1.57.
“This stabilisation shows the strength of the pound, contrary to other currencies like the euro – which dropped against the US dollar again.
“In the meantime, and after the Bank of England statement that the rate hike will be data dependent, the upcoming economic releases will have a notable and significant impact on the markets and the British pound much more than before, as positive figures would allow investors and traders to start pricing in a rate hike by the Bank of England – which might be the same as what happened to the US dollar this year.”
New Suez Canal: challenging waters ahead?
Egypt’s ambitious target of expanding the Suez Canal in one year was realised with the official opening last week
Eight billion dollars have been spent on the flagship project, but questions are being asked about whether economic promises will be fulfilled.
Public and private sectors need to work hard to develop investment projects in the Canal Zone.
Four-hundred companies and 25-thousand workers were brought in to make the expansion happen.
They built a new 35 kilometre channel and widened and deepened 37 kilometres of the original one.
Capacity has been expanded from 49 ships to 97 per day.
Canal revenues are projected to double to 13.5 billion dollars by 2023.
Official estimates suggest the canal zone development project could create around a million jobs.
But that job creation is dependent on attracting investors to build factories and logistics facilities in planned industrial zones around the canal.
Millions of Egyptians are hoping the new investment will pay off. Twenty-percent of the country’s population is below the poverty line.