Inflation decline paves way to interest rates cut: Bloomberg

CAIRO - 10 September 2019: The decline in Egypt's inflation during August could be the second-biggest push to cut interest rates across emerging markets, according to Bloomberg Tuesday.

The Central Agency for Public Mobilization and Statistics (CAPMAS) announced earlier Tuesday that Egypt’s annual consumer price inflation declined to 6.7 percent in August 2019, compared to 13.6 percent in August 2018.

As rate hit its lowest level since the start of 2013, the news-agency stated that stronger disinflationary momentum all but clinches another rate cut when the central bank meets later this month.

"The slowdown in inflation is a key gain for the bank," according to Bloomberg.

Bloomberg quoted Markit Egypt Purchasing Managers’ Index saying that despite the fastest economic growth in the Middle East, monetary stimulus could be warranted as business activity has contracted in all but two of the past 12 months.

The depth of easing in Egypt could be second only to Turkey this year and next, according to BNP Paribas SA.

In August, The Monetary Policy Committee of the Central Bank of Egypt (CBE) cut the overnight deposit rate, the overnight lending rate, and the rate of the main operation by 150 basis points on Thursday, August 22. The overnight deposit rate, the overnight lending rate, and the rate of the main operation are cut to be at 14.25 percent, 15.25 percent, and 14.75 percent, higher than economists’ expectations.

The “trajectory is for inflation to continue coming down in the second half of the year and for the central bank to continue to use that as a window to ease rates,” a London-based economist with Bank of America Merrill Lynch, Jean-Michel Saliba, told Bloomberg.

"Even with the latest rate cut, Egypt remains attractive to foreign investors seeking ample returns from pumping money into short-term debt," it stated.

The real interest rate is still strong compared to other emerging-market economies, according to Saliba.

"The Egyptian pound is the world’s second-best performer against the dollar this year with a gain of almost 9 percent," Bloomberg stated.

“The effects of fuel subsidy cuts and the energy price reforms are mostly behind us,”head of research at Arqaam Capital Jaap Meijer told Bloomberg. “We become more bullish on Egyptian monetary-policy easing.”