Egypt Central Bank seen to hold Rates after Inflation Pick-up – Survey

Egypt’s central bank is expected to keep interest rates on hold on Thursday, choosing not to cut borrowing costs to boost the country’s slowing economy after inflation hit a five-month high in March.

Five economists surveyed by Reuters all forecast that the bank’s monetary policy committee (MPC) would keep its overnight rates unchanged at 9.75 percent for lending and 8.75 percent for deposits at its meeting.

“Given the rise in the inflation rate in March, it is our expectation that the MPC in Egypt will maintain rates,” said Angus Blair, chairman of business and economic forecasting think-tank Signet Institute.

Price pressures eased in November but have crept back up since, in part due to a weaker Egyptian pound.

Urban consumer inflation rose to 11.5 percent in March from 10.6 percent the previous month and core inflation ticked up to 7.21 percent from 7.15 percent.

Inflation rose in July after the government slashed energy subsidies to help reduce its swelling budget deficit. The central bank subsequently raised its benchmark rates by 100 basis points but then unexpectedly cut them by 50 basis points in January.

Critically low foreign currency reserves and a fluctuating exchange rate have also dogged the Egyptian economy since a 2011 uprising that ousted veteran autocrat Hosni Mubarak.

“The pick-up in price pressures (in March) was driven almost entirely by a rise in food and utility price inflation, which seemed to partly reflect the depreciation of the pound against the dollar earlier this year,” Capital Economics said in a research note.

The central bank let the pound weaken to 7.53 per dollar from 7.14 in the early part of this year in an effort to wipe out black market currency trading.

Economic activity has slowed in recent months. Gross domestic product grew 4.3 percent in the last quarter of 2014, compared to 6.8 percent in the same period a year earlier. The non-oil private sector continued to shrink in the first three months of 2015.

“As seen in the recent HSBC PMI (poll), activity in Egypt still remains poor and we would like to see the MPC recognise this in its decision-making,” Signet’s Blair said.

Source: Reuters

Comments
Loading...