CBE to put interest rates on hold despite inflation ease: Economists

CAIRO – 16 November 2017: The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) is predicted to keep interest rates on hold in its Thursday meeting, economists said.

The expectation came as annual inflation rates are still higher than 30 percent. “We believe rates will keep [their] current high levels until the base effect helps drag inflation rates down,” Esraa Ahmed, an economist at Mubasher Trade, said.

In a research note published on Thursday, Mubasher foresaw the annual inflation rate declining to 24-25 percent by the end of November.

In a Reuters poll conducted last week, nine out of 10 economists said they expect the CBE to keep interest rates on hold for the third MPC meeting in a row.

Egypt’s annual inflation dropped in October to 31.8 percent year-on-year, compared to 32.9 percent year-on-year in September, the official statistics agency announced last week.

Meanwhile, Egypt’s core inflation fell to 30.53 percent year-on-year in October, from 33.26 percent in September, according to data published by the CBE.

“We believe the monetary authority is still in need for a high level of foreign purchases of local debt instruments,” Mubasher said. Egypt’s Balance of Payments is still supported by the capital account’s portfolio investments.

As the U.S. Federal Reserve is expected to hike interest rates, Egypt will try to leave interest rates high “as long as possible lest foreign investors turn bearish on Egyptian debt instruments,” Mubasher added.

London-based research firm Capital Economics said in a report last week that the current rate is not enough for the Central Bank to cut interest rates in its meeting. “We expect the first rate cut to come in December,” Jason Tuvey, the firm’s Middle East economist, said in a note.

Capital Economics believe the first rate cut will come in the MPC’s meeting on December 28 at 100 basis points to hit 17.75 percent.

Economic analyst at Pharos Holding Ramy Oraby shares similar views. He says that the CBE is more likely now to consider cutting interest rates; “not necessarily in the next MPC meeting, but in the upcoming meetings.”

“The CBE usually doesn’t look for a certain level of inflation to reduce interest rates, but it looks at the overall economic trend,” Oraby said.