CBE Keeps interest rates on hold during May

CAIRO – 23 May 2019: The Monetary Policy Committee of the Central Bank of Egypt (CBE) kept the overnight deposit rate and the overnight lending rate unchanged on Thursday, meeting analysts’ expectations.

The overnight deposit rate and the overnight lending rate were kept at 15.75 percent and 16.75 percent, respectively, during May’s meeting.

MPC attributed this decision to the decline of inflation rate in April, the slight rise of GDP to 5.6 percent during the first quarter of 2019, in addition to the slowdown of global economy, as well as targeting to achieve a primary surplus of 2 percent of GDP during fiscal year 2018/2019.

Analysts expected CBE to keep rates unchanged in light of the inflationary season, including Ramadan, Islamic feasts and the beginning of the new fiscal year with subsidy cuts.

Despite April’s good inflation rate, most analysts see that it is not enough for another interest rate cut, with reference to an expected rise in inflation during May and June as a result of Ramadan, feasts and subsidy cuts.

The Central Agency for Public Mobilization and Statistics (CAPMAS) announced earlier that Egypt’s annual consumer price inflation fell to 12.5 percent in April 2019, compared to 12.9 percent in April 2018. Egypt’s annual core inflation rate declined to 8.1 percent in April 2019, from 8.9 percent in March 2019, according to CBE’s report.

Head of Microeconomics Analysis at EFG Hermes Mohamed Abu Basha told Enterprise that CBE would refrain from taking any action now that we are getting closer to the liberalization of fuel prices this summer.

On Tuesday, Egypt's Electricity Minister Mohamed Shaker announced a new subsidy cut of electricity tariffs, recording a 14.9 percent rise that will be applied as of July.

“We expect monthly inflation to rise in May as a result of higher consumer demand during Ramadan. Moreover, we estimate fuel prices to rise 15 percent-25 percent in June-July, compared to average fuel price increases of 31 percent-42 percent for octane and diesel in FY2017-2018, resulting in higher monthly inflation in June and July,” HC’s Sara Saada told press.

Senior economist at Shuaa Securities Esraa Ahmed stated earlier her belief that CBE could prefer to keep rates unchanged for some time, attributing this belief to the recent inflation hikes which were mainly pushed by food items, and the need to keep foreign inflows in shape, especially before imports pick up in the upcoming season, in addition to global oil prices.

In Reuter’s poll, eleven out of 14 economists said the Central Bank of Egypt’s (CBE) monetary policy committee was unlikely to change its overnight rates, with deposits at 15.75 percent and lending at 16.75 percent.

“The CBE will likely be reluctant to change its monetary stance at this point, given the anticipated energy subsidy cuts expected next month,” Senior Economist at Egyptian investment bank CI Capital Hany Farahat told Reuters, expecting the CBE to maintain policy rates stable during Q3 and resume easing in Q4 2019.

On another note, Senior Economist at Beltone Alia Mamdouh said that there is a room for a 100 bps interest rate cut. “But the most likely scenario remains a 100 bps cut in rates by the end of the year, accounting for the expected inflationary repercussions of the wider implementation of the fuel indexation mechanism.”

During March’s meeting, CBE kept the overnight deposit rate and the overnight lending rate at 15.75 percent and 16.75 percent, respectively.

During the first meeting in 2019 held in February, the Monetary Policy Committee of the Central Bank of Egypt (CBE) cut the overnight deposit rate and the overnight lending rate to 15.75 percent and 16.75 percent, respectively.