Who sets the rate?
In Egypt, the Monetary Policy Committee of the Central Bank of Egypt decides the key interest rates, such as the overnight deposit and lending rates. That decision is not exactly the rate on your savings certificate, but banks build their own rates on it, so it shapes savings returns and borrowing costs across the whole economy. These numbers change from meeting to meeting, so always check the latest official statement from the central bank rather than a figure you heard somewhere.
Three routes from rates to stocks
The first route is the alternative. When bank savings pay more, many people compare and find a known return more attractive, so some money may leave stocks for the bank. When rates fall, the comparison flips.
The second route is the cost of debt: a company with variable-rate loans, or one that needs to refinance its debt, pays more interest when rates rise, and that comes straight out of its profit. The third route is the value of future profits: anyone valuing a company compares its coming profits with the return available without risk. The higher that return, the lower the price the market may put today on the same future profits.
A worked example
The reverse happens too. A company with almost no debt is untouched by the second route, and one holding plenty of cash may earn more interest income when rates rise. So rates do not hit every stock to the same degree, or even in the same direction.
Why the market sometimes does not move
Prices react to surprise more than to the news itself. If most traders expected a rate rise, they may have acted on it weeks before the decision, so the day itself passes quietly. If the decision goes against expectations, the reaction can be much bigger.
Compare for yourself
Open the rates page to see savings returns and exchange rates, then look at how the market is moving today.
Check yourself
1. A company carries large loans and its loan rate rises. What is the most direct effect?
2. Everyone expected a rate cut, and a cut came. Why might the market barely move?
Summary
- The central bank's Monetary Policy Committee sets the key rates, and banks build on them.
- Rates reach stocks through the alternative, the cost of debt and the value of future profits.
- The effect differs by company, and the market moves on surprise more than on the news.