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Egypt’s central bank seen cutting rates as inflation eases

Egypt’s central bank to meet on Thursday to decide on key interest rates

Gulf News


Egypt’s central bank is likely to start a gradual easing of monetary policy in its meeting on Thursday, a Reuters poll showed on Tuesday, as inflation hit its lowest level since the country floated its currency.

The Egyptian pound lost half of its value and prices shot up after Egypt floated the currency in November 2016 to secure a $12 billion International Monetary Fund deal to revive its economy.

Eight out of 10 economists polled by Reuters said the bank on Thursday will cut the deposit and lending rates, currently at 18.75 and 19.75 per cent.

Six economists said the bank would cut the rates by 100 basis points while two said it would cut by half of that.

“We see a rate cut this quarter as justifiable and a necessary signal of lower inflation,” said CI Capital senior economist Hany Farahat. He expected a cut of 50 basis points.

Annual urban consumer price inflation eased to 17.1 per cent in January from 21.9 per cent the previous month, while annual core inflation, which strips out volatile items, fell to 14.35 per cent from 19.86 per cent.

Inflation had jumped to a record high of around 35 per cent in July after the country hiked energy prices, but it has eased since.

The IMF said in a report last month it expected inflation to fall to 12 per cent by June and to single digits by 2019. It warned against a premature rate cut and urged the CBE to remain vigilant.

Since it floated the pound, the bank has raised overnight rates by 700 basis points to combat soaring inflation, generating an unprecedented appetite for Egypt’s domestic debt, but slowing down badly needed foreign direct investment.

Yields on Egyptian treasury bills have been dropping in recent weeks to their lowest levels since the currency float in anticipation of Thursday’s monetary policy meeting.

Egypt’s economy has been struggling since 2011 when a political uprising drove tourists and foreign investors away, but economic reforms tied to the three-year IMF deal signed in 2016 have led to positive economic indicators.