Egypt’s central bank in Cairo. Image Credit: Bloomberg

Cairo: Egypt unexpectedly refrained from another cut in interest rates on Thursday after inflation ticked up in December and as unrest jolted other parts of the Middle East, from Iran to Libya.

After three rounds of easing since August, the Monetary Policy Committee left the deposit rate at 12.25 per cent and the lending rate at 13.25 per cent, according to a statement on Thursday. All but three of 19 economists surveyed by Bloomberg had predicted a cut.

The MPC said that current rates were in line with its inflation target of 9 per cent, plus or minus 3 percentage points, in the fourth quarter of 2020, but it “will not hesitate to resume its easing cycle subject to further moderation of inflationary pressures.”

The surprise decision will deprive the Middle East’s fastest-growing economy of more stimulus as it courts private enterprise in the latest phase of its sweeping reform programme. The overhaul began in late 2016 with a dramatic currency devaluation and subsidy cuts to secure a $12 billion International Monetary Fund loan.

In the aftermath, inflation rocketed to over 30 per cent before sharply slowing down. Annual price growth accelerated to 7.1 per cent in December, picking up from the previous month due to the “strong unfavourable base effect”, the statement said.

The central bank cut rates by 450 basis points in 2019, but analysts say another bout of easing may help Egypt meet its targets of slashing debt-service costs and boosting lending to fuel business activity. The latter has contracted in all but two of the past 16 months, according to the Markit Egypt Purchasing Managers’ Index.

The Egyptian pound’s status as one of the world’s best performing currencies in 2019 also gave breathing space for another cut.

Following last year’s reductions, “it was normal to take a breather to assess the impact of these cuts on the market before resuming further monetary easing,” said Radwa El-Swaify, head of research at Cairo-based Pharos Holding. El-Swaify, who’d predicted a hold, said she expected inflation to also “continue on the high side” in January.

“In addition, geopolitical developments in the region would require monetary caution,” she said.