CBE expected to ease monetary policy after cooling inflation

CAIRO – 7 February 2018: The Central Bank of Egypt (CBE) is expected to start easing monetary policy in the coming period after inflation rates have slowed down in recent months.

CBE Governor Tarek Amer said yesterday on the sidelines of the financial technology conference "Seamless North Africa" that the bank plans to start easing monetary policy “soon,” once it is assured that inflation has been controlled.

Inflation has skyrocketed in Egypt after the country floated its local currency in November 2016, reaching a record high of 33 percent in July 2017 as a result of the pound losing 50 percent of its value and cutting energy subsides.

In a bid to curb inflation, the CBE increased interest rates by a total of seven percent since the flotation of the Egyptian pound in November 2016.

In its first review published in late September, the International Monetary Fund (IMF) flagged high inflation and fiscal pressures from energy subsidies as main challenges facing the Egyptian government.

However, inflation started to cool down gradually since its peak in July, reaching 22.3 percent in December, compared to 26.7 percent in November, the official statistics agency CAPPMAS said last month.

This is the lowest annual inflation rate since flotation. Economic analysts expected inflation to continue dropping in the coming months, allowing the central bank to consider cutting interest rates.


Courtesy of Capital Economics Research

Decreasing inflation over the previous months has pushed the CBE to keep its interest rates unchanged for three consecutive times, setting the overnight deposit rate and the overnight lending rate at 18.75 percent and 19.75 percent, respectively.

The next meeting for the CBE’s Monetary Policy Committee (MPC) is next week.

The flotation was part of Egypt’s economic reform program, after which the country clinched a $12 billion loan from the International Monetary Fund (IMF).

Egypt is to receive a fourth disbursal of that loan, worth $2 billion, in June or July, the Finance Ministry said in previous statements, bringing the total it has received to $8 billion. The IMF agreed in December 2017 to the third disbursal, also worth $2 billion.

Amer said during the conference that total foreign currency inflows into the economy since the flotation amounted to $100 billion.