Cairo – Mubasher: The decision by the Central Bank of Egypt (CBE) to leave key interest rates unchanged despite surging inflation, which reached a 30-year record high in January, indicates that the CBE will not adopt a monetary tightening policy, Capital Economics stated.
“We have taken the 150bp of rate hikes that we had previously expected out of our profile. The next move in interest rates will be down, with Q4 of this year the most likely time for the first cut,” the ratings agency highlighted in a statement published on its official website on Friday.
On 3 November 2016, the CBE announced raising interest rates by 300 basis points (bps) as a step to limit the anticipated inflationary pressures that will result from the devaluation of the pound; however, inflation surged by more than expected.
This surge was recently acknowledged by the International Monetary Fund (IMF), whose austerity measures included the floatation of the Egyptian pound against the US dollar.
On Thursday, the CBE’s Monetary Policy Committee (MPC) decided to keep interest rates unchanged at 15.25%, while interest on overnight deposits were kept at 14.75% and overnight lending at 15.75%.
The decision followed a report showing that Egypt's core inflation surged to 30.86% in January 2017, a record high in over a decade, after the CBE removed the local currency peg with the dollar and floated the pound.
The CBE’s decision to keep interest rates unchanged followed a sharp drop in the US currency against the EGP, with the EGP regaining as much as 15% of its value since the start of February on the back of increased private capital and lower demand on imports, Capital Economics noted.
It expects inflation to decline by mid-2017, as the CBE begins to reduce interest rates towards the end of the year and to continue falling in 2018, according to the statement.
The decision to float the local Egyptian currency resulted in weakening the EGP, while the greenback passed EGP 19 in 2017, compared to the pegged price of EGP 8.8. However, in recent days the USD-EGP declined, ending Thursday, 16 February 2017 at nearly EGP 16.08.
