Egypt’s Central Bank Expected to Keep Main Rates on Hold

Egypt’s central bank is expected to keep interest rates unchanged at a monetary policy meeting on Thursday, a Reuters survey shows, as officials seek to balance the need to stimulate the economy while curbing high inflation.

Egypt’s economy has endured more than three years of political instability after the overthrow of autocrat Hosni Mubarak in 2011 deterred tourists and foreign investors.

The bank is under pressure to keep interest rates high to attract funds out of foreign currencies and into the Egyptian pound.

In its last monetary policy meeting Egypt kept its deposit rate at 8.25 percent and its lending rate at 9.25 %. It also kept its discount rate and the rate it uses to price one-week repurchase and deposit operations at 8.75 %.

Five of six economists surveyed by Reuters expect the bank to keep rates unchanged on Thursday, while one expected it to cut them by 50 basis points.

“The central bank cut interest rates three times and we haven’t seen the impact on credit growth, so they might want to take a breather. Inflation is decelerating but still remains high,” said EFG-Hermes economist Mohamed Abu Basha.

Egypt’s annual urban inflation rate slowed to 11.4 % in January from 11.7 % in December. Core annual inflation slid to 11.7 % in January from 11.9 % in December.

Supported by more than USD12 bln in aid from Gulf states, Egypt launched two stimulus packages worth around LE 30 bln (USD 4.3 bln) each to spur growth in its ailing economy.

Unlike other analysts surveyed by Reuters, Jason Tuvey, assistant economist at Capital Economics, expects the central bank to cut rates on Thursday by 50 basis points as the Egyptian economy continues its recovery.

“Aid from the Gulf means that the central bank doesn’t need to keep interest rates high in order to attract foreign capital inflows,” Tuvey said.

“With inflation set to fall back and aid from the gulf propping up Egypt’s external position, we think that the central bank will try to provide as much support to the economy as it can via looser monetary policy,” he said.

Egypt’s gross domestic product (GDP) grew a meagre real 1.04 % in the first quarter of this fiscal year – the three months to September 30 – compared with 2.1 % in the same quarter of the year before.

GDP grew 2.1 % in the previous fiscal year, too little to make an impact on youth unemployment, estimated over 20 %. Official unemployment figures put it at 13 %.

Source: Reuters