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Egypt central bank seen holding rates unchanged

Majority of economists polled predict status quo until inflation trend becomes clearer

Gulf News

Cairo: Egypt’s central bank is expected to keep interest rates unchanged on Thursday, holding fire on further action until the impact on inflation of last month’s steep hike in borrowing costs becomes clearer, a Reuters poll showed.

In early November the central bank ditched its foreign exchange peg of 8.8 pounds per dollar and, to help stabilise the newly floated currency, hiked interest rates by 300 basis points. The pound has since weakened to around 19 per dollar .

Annual headline inflation surged to an eight-year high of 19.4 per cent in November and many economists expect prices to keep rising next year, driven by economic reforms including subsidy cuts and tax increases.

But seven of 11 economists polled by Reuters said they expected the central bank’s monetary policy committee (MPC) to hold overnight deposit rates at 14.75 per cent and overnight lending rates at 15.75 per cent at its meeting on Thursday.

“The inflation outturn for November saw a big jump, but we think this is largely expected given the float of the currency and hike in fuel prices,” said Mohammad Abu Basha, economist at EFG Hermes.

“We don’t see [the central bank] moving on interest rates before a few more inflation readings to have a clearer view on inflation trends.”

Four respondents forecast a hike — two of 50 basis points, one of 150 points and one of 200 points.

Hany Genena, head of research at Beltone Financial, who forecast the 200-point hike, cited inflationary pressures as the key factor.

“In this inflationary environment, the primary target of any central bank would be to maintain faith in the local currency as a store of value at any cost,” Genena said.

“Treasury yields at the shorter end of the curve have indeed rebounded sharply after a temporary dip, which reflects the high likelihood of a rate hike.”

Egypt had been struggling with a foreign currency shortage since an uprising in 2011 that drove away tourists and foreign investors — both major sources of hard currency.

In November it sealed a $12 billion, three-year loan from the International Monetary Fund to support the economic reform programme.

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