Egypt's Central Bank Governor Tarek Amer speaks at a news conference in Cairo. Photo: Reuters.
Egypt's Central Bank Governor Tarek Amer speaks at a news conference in Cairo. Photo: Reuters.

Egypt's central bank may maintain interest rates

By Yousef Saba Time of article published Jul 10, 2019

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INTERNATIONAL – Egypt’s central bank is likely to maintain interest rates at their current level on Thursday, a Reuters poll showed, as analysts foresaw a spike in inflation after a hike in fuel prices last week.

Of 15 economists surveyed by Reuters, 14 said the bank’s monetary policy committee was unlikely to change its overnight rates, with deposits at 15.75% and lending at 16.75 percent.

“Higher domestic fuel and electricity prices in July will raise inflationary pressures further in H2,” said Nadene Johnson, an economist at NKC African Economics.

“Nonetheless, there appears to be limited demand-side inflationary pressure because of low real earnings, which could mitigate some of the expected supply-side inflation.”

Scaling back fuel subsidies that have strained the budget for decades was a key plank of a three-year, $12 billion (R169bn) reform package signed with the International Monetary Fund in 2016.

Egypt’s economy had been struggling to recover from the turmoil that followed its 2011 uprising.

Other measures agreed under the loan include a sharp devaluation of the currency and the introduction of a value-added tax.

“Inflation edged higher in May and upcoming reform measures (fuel/energy subsidy cuts) will likely keep the CBE on a holding pattern over the next few months,” Bryan Plamondon, IHS Markit global economics director focusing on the Middle East and North Africa, said before the fuel price hikes on Friday.

The poll was conducted from June 30 to July 8.

Headline inflation accelerated to 14.1 percent in May from 13 percent in April. It had fallen in April from 14.2 percent in March.

Core inflation, which strips out volatile items such as food, fell in May to 7.8 percent from 8.1 percent the previous month.

“Inflation will spike MoM (month-on-month) in July-September, but the annual rate will be supported by the base effect, capping the reading at 14-15 percent,” said Radwa El-Swaify, head of research at Pharos Securities Brokerage.

“In light of the delay in energy subsidy cuts, and the fact that June has passed without any movement in energy prices, we expect June inflation to record c. 1.0-1.5 percent MoM and 11.2-11.8 percent YoY, which will be a significant drop in inflation.”

The government had told the IMF it would remove subsidies entirely from most fuel products by June 15 after increasing fuel prices steadily over the past four years.

It did not explain the delay, but austerity measures are politically sensitive and have dented the popularity of President Abdel Fattah al-Sisi.

The central bank kept interest rates steady at its last two meetings, in May and March, after a surprise 100 basis points cut in February.

Several analysts said the CBE was likely to wait until the fourth quarter of 2019 to cut rates, given the impact of the fuel subsidy cuts and concerns over global trade.

“We now expect the next window to cut the bank rates is several months away,” said Angus Blair, chairman of business and economic forecasting think-tank Signet.

NKC’s Johnson said: “The dovish stance by the US Fed supports further rate cuts by the CBE in the coming year.”


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