CBE expected to cut interest rates Thursday

CAIRO – 29 March 2018: The Central Bank of Egypt is expected to cut interest rates in today’s Monetary Policy Committee (MPC) meeting.

Many investment banks are expecting a rate cut because of cooling inflation, which reached 14.4 percent in February, the lowest level since the flotation of the Egyptian pound in late 2016.

Investment Bank EFG Hermes sees the CBE pushing through a second rate cut of 50-100 basis points “before the CBE takes a pause to assess the impact of its two rounds of monetary easing on key monetary aggregates.”

Pharos Research predicted on Sunday that the MPC will cut the policy rates by 100 basis points. It said that the fall in headline and core inflation rates to the target level, 13 percent on a year-on-year basis, is a comfort factor for the central bank to make another cut in policy interest rates.

Pharos’ anticipation of an interest rate cut comes as the central bank wants to narrow the gap between the inflation rates and the deposit rate.

CI Capital’s research team also sees a 100 basis points cut in today’s meeting, projecting interest rates to fall five percent by the end of the year.


Courtesy of Capital Economics Research

Joining the predictions, investment bank HC Securities and Investment expects a 100 basis points cut, a prediction buoyed by cooling inflation.

HC economist Sara Saada said that the decline in inflation was the main driver behind the CBE’s decision to cut interest rates last month for the first time since flotation.

Mubasher sees a sharper cut of 200 basis points as the base effect continues to kick in on the inflation side of the equation.

In the MPC’s last meeting in February, the CBE cut the overnight deposit rate to 17.75 percent from 18.75 percent, and lowered the overnight lending to 18.75 percent from 19.75 percent. This was the first rate cut since flotation.

The CBE has raised interest rates by a total of seven percent since the float in late 2016 in a bid to curb inflation.

Driven by flotation and cutting fuel subsidies, inflation spiked to a peak level of 33 percent in July 2017, however it started declining gradually afterwards.