Egypt Central Bank cuts Benchmark Rates as Inflation Outlook eases

Egypt’s central bank made a surprise 50 basis-point cut in its main interest rates on Thursday, saying plummeting global oil prices had eased inflation risks while economic growth was rebounding.

The central bank’s monetary policy committee (MPC) reduced overnight deposit and lending rates to 8.75 and 9.75 percent respectively, surprising analysts who forecast in a Reuters poll that rates would remain unchanged.

Though annual urban consumer inflation rose to 10.1 percent in December from 9.1 percent the previous month as food and housing costs rose, Egypt’s central bank said the outlook for inflation had eased.

Meanwhile, economic growth reached an annual 6.8 percent in the first quarter of the fiscal year that began in July on the back of a rebound in manufacturing and tourism.

“Upside risks from imported inflation continue to be contained on the back of lower oil prices and the consequent revision in international food price forecasts,” it said in a statement.

“In light of recent global developments and the reassessment of risks surrounding the inflation outlook and domestic GDP, the MPC decided to cut the key… rates.”

Egypt has struggled to revive an economy battered by four years of economic turmoil since the Arab Spring uprisings.

To help reduce a swelling deficit, the government slashed energy subsidies in July, raising energy costs by up to 78 percent. That raised inflation, prompting the central bank to raise its benchmark rates by 100 basis points on July 17.

It kept rates at that level until Thursday.

Inflation fell in November, and plummeting global oil prices, a boon for oil importers like Egypt, briefly raised expectations of a looming rate cut.

But last month’s rise in inflation had prompted four out of five economists polled by Reuters this month to predict that the central bank would keep rates on hold for now.

Capital Economics said it was revising its interest rate outlook in light of Thursday’s surprise cut and now expected the central bank to bring rates down by a further 50 basis points in the coming months.

“Although the slide in oil prices is unlikely to have much direct impact on domestic inflation, it has helped to ease strains in the balance of payments,” it said in a note.

“We are bringing forward the cuts in rates that we had expected to take place in 2016 to this year.”

Source: Reuters