Egypt’s central bank is likely to keep key interest rates unchanged in its monetary policy meeting this Thursday, a Reuters poll showed, after a slide in inflation that is expected to continue in the last quarter of 2017.
The Central Bank of Egypt (CBE) has raised interest rates by 700 basis points since it floated the pound currency in November as part of reforms tied to a $12 billion International Monetary Fund deal intended to help revive the country’s ailing economy.
Ten out of 12 economists polled by Reuters said the CBE would keep the deposit rate at 18.75 percent and the lending rate at 19.75 percent as post-float inflationary pressures continue to ease.
Inflation dipped in August after reaching a multi-decade high in July following a sharp hike in energy prices as the government sought to narrow its gaping budget deficit.
It had climbed steadily since the Egyptian pound was floated in November float, a move that saw the currency’s value slashed by half against the US dollar. It was trading at about 17.7 per dollar on Tuesday.
Economists expect inflation to cool towards year-end
Urban consumer price inflation stood at 31.9 percent in August, down from 33 percent a month before, while core inflation, excluding volatile items such as food, dipped to 34.86 percent from 35.26 percent in July.
“Although monthly inflation is declining, annual headline inflation is still too high for the CBE to cut interest rates,” said Reham Eldesoki, a senior economist at regional investment bank Arqaam Capital. “We believe the cut will most likely occur when headline inflation breaks the 20 percent in Q1 of 2018.”
Egypt’s finance minister said last week he expected inflation to drop below 15 percent by the end of the 2017-2018 fiscal year that began in July.
Two economists polled expected the CBE to cut rates by 100 basis points at Thursday’s meeting, citing easing inflation and the high corridor rates, which risk hampering private sector activity.
“We expect (and hope that) the MPC will bite the bullet and begin cutting rates again, to revive the private sector,” said Angus Blair, chief operating officer of Pharos Holdings, an investment bank.
Economic growth slowed after 2011, especially with tourism numbers dropping, but the tough economic reforms implemented since November have begun showing some positive outcomes.
Blair said increased interest in Egypt’s domestic debt, higher inflows of FDI and remittances, as well as improved tourism revenues, should all encourage the CBE to cut rates.
Allen Sandeep, head of research at Naeem Brokerage, also expects the CBE to cut rates by 100 basis points this week.
“It should be turning increasingly less cost-effective to banks to operate at these rates, given the substantial drop in T-bills yields (now trading well below the corridor rates) and with lending growth unable to catch-up with rising deposits,” he said.
Moody’s: Egypt economy still recovering from 2011 uprisingAn international credit rating agency says Egypt’s economy has started to improve but has yet to recover from the 2011 uprising and the years of ... Economy
Egypt's Suez Canal revenues rise to $470.6 mln in AugustEgypt's Suez Canal revenues rose to $470.6 million in August from $447.1 million in July, the government said on Tuesday. The canal is the fastest ... Economy
Egypt plans more Eurobond issues in coming monthsEgypt will issue a 1.8 billion (1.5 bln euro) bond by the end of November and then plans to launch a new $10 billion Eurobond program next year, the ... Economy
WATCH: Here’s what happened when this UAE army officer met Egypt’s SisiDuring the meeting between Crown Prince of Abu Dhabi Sheikh Mohammed bin Zayed Al Nahyan and Egyptian President Abdel-Fattah al-Sisi in the UAE on ... Variety