CBE keeps interest rates unchanged at 16.75%, 17.75%

CAIRO – 28 June 2018: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) kept interest rates unchanged on Thursday, setting the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.

During May’s meeting, MPC also kept the interest rates unchanged after lowering them twice earlier this year by 1 percent each time.

On March 29, the committee set the overnight rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively. In February, the committee lowered the interest rates by 1 percent for the first time since the flotation of the Egyptian currency in November 2016, after inflation rates slowed down.

HC Securities & Investment (HC) said earlier that the CBE would keep the interest rates fixed during the third quarter of 2018, with more decisions in the fourth quarter.

“We believe the MPC will likely keep interest rates unchanged at its upcoming meeting. The partial lifting of energy subsidies was a major event that has affected the market since the last MPC meeting,” Chief Economist at HC, Sara Saada previously said.

It also expected the monthly inflation in June to rise to 3.5 percent and the annual inflation to hit 14.5 percent as a result of the partial lifting of energy subsidies.

The Cabinet announced on Saturday, June 16, the new prices of fuel, gradually decreasing its subsidy.

Gasoline 95 prices went up from LE 6.6 ($ 0.37) per liter to LE 7.7, while 92 octane gasoline prices amounted to LE 6.75 instead of LE 5 per liter. Prices of gasoline 80's liter increased to LE 5.5 instead of LE 3.65, the newly-appointed government said in its first move since taking oath.

The price of diesel will be LE 5.5 a liter instead of LE 3.65, while the price of natural gas used for vehicles rose to LE 2.75 per cubic meter instead of LE 2.

The government also announced raising the price of the cooking gas cylinder to LE 50 instead of LE 30 and the commercial gas cylinder's prices surged to LE 100 instead of LE 60.

HC also estimated in a report that the monthly inflation in July will record 1.5 percent, due to the rise of electricity prices, and the annual inflation will reach 12.5 percent on favorable base year effect.

The World Bank said inflation has subsided substantially in 2018, falling to 13 percent in April from a peak of more than 30 percent in July 2017, allowing the Central Bank to implement two interest rate cuts this year to support activity.

As per inflation, the Central Bank of Egypt (CBE) said that Egypt’s annual core inflation rate declined to 11.1 percent in May 2018 from 11.6 percent in April 2018, according to a report.

On a monthly basis, core inflation recorded 1.5 percent in May 2018, compared to 1.1 percent in April.

Core inflation discounts or strips out certain categories that are considered more volatile.

The Central Agency for Public Mobilization and Statistics (CAPMAS) announced that annual consumer price inflation slipped to 11.4 percent in May 2018, from 13.1 percent in the previous month.

The CBE has raised interest rates by a total of 7 percent since the flotation 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.

The Egyptian government expected inflation to decline by the end of this fiscal year from 17 percent to 13 percent, according to former Minister of Finance Amr el-Garhy.

Capital Economics and Mubasher expected inflation to rise in the upcoming period, stating that the first one or two months of the upcoming fiscal year 2018/2019 will witness a rise in inflation rates, with the government's intention to cut subsidies.

On June 12, Egypt cut its electricity subsidies, raising prices by an average of 26 percent in the 2018-2019 fiscal year beginning in July.

Minister of Electricity Mohamed Shaker stated the overall increase does not exceed 26 percent, while the average hikes in bills for households amount to around 24 percent, affirming that the new hikes save the country from potential losses that might reach LE 109 billion.

Egypt embarked on a bold economic reform program that included the introduction of taxes, such as the value-added tax (VAT), and cutting energy subsidies, with the aim of trimming the budget deficit.

The country has floated its currency in November 2016 before it clinched a $12 billion loan from the International Monetary Fund (IMF).

The IMF loan helped the state’s foreign reserves to rebound by receiving the first three tranches of the loan with a total value of $6.08 billion.