Beltone expects Egypt central bank to cut rates by 3% in H1-2020

Slowing inflation will prompt Egypt’s central bank to cut its key interest rates by about 3 percent during the first half of 2020, according to a chief economist at Beltone.

Alia Mamdouh said Beltone Financial’s forecast is supported by the current inflation levels that fall below 10 percent.

The primary motive for the Central Bank (CBE) when changing interest rates has always been fighting inflation. People tend to put more of their money in banks— instead of spending it—when interest rates are high. That dynamic dampens demand, prompting businesses to lower prices to retain sales.

Egypt’s central bank cut its key interest rates on Thursday at its third consecutive policy meeting since August, after inflation dropped to its lowest in nearly 14 years and central banks continued to ease monetary policy globally.

The overnight deposit and lending rates were cut by 100 basis (bps) points to 12.25 percent and 13.25 percent, respectively.

“Incoming data continued to confirm the moderation of underlying inflationary pressures, notwithstanding the expected impact of unfavorable base effects,” the central bank said in a statement explaining its decision.

Egypt’s annual urban consumer price inflation dropped to 3.1 percent in October from 4.8 percent in September, its lowest rate since December 2005, according to Refinitiv data.