Capital Economics expects CBE to cut interest rates by 50bps

CAIRO – 12 February 2020: Capital Economics expected Egypt to complete its easing cycle during February’s meeting despite the hike in inflation rates in January.

“We have penciled in a 50bp cut in the overnight deposit rate, to 11.75 percent, at next week’s meeting and expect it to be cut further to 10.00% by year-end,” it anticipated in a recent report.

It attributed the expectation to that the rate of inflation is still within the Central Bank of Egypt’s (CBE) target which is a range of 9 percent, plus or minus 3 percentage points.

Egypt statistics body announced earlier that the annual consumer price inflation recorded 6.8 percent in January 2020, compared to 12.2 percent in January 2019. On a monthly basis, inflation increased 0.8 percent in January, recording 105.2 points.

The rise in food inflation pushed up headline inflation by around 0.3 percent-pts but appears to have been offset by weaker inflation in the other major price categories, it commented.

According to the report, January’s rise in inflation, which is the third in a row, means that next week’s MPC meeting will be another close call. Policymakers decided to pause their easing cycle in January, probably as they wanted to await more details on just how far inflation would rise following its jump between November and December.

The Monetary Policy Committee of the Central Bank of Egypt (CBE) kept the overnight deposit rate, the overnight lending rate, and the rate of the main operation unchanged during January's meeting.

The overnight deposit rate, the overnight lending rate, and the rate of the main operation were kept at 12.25 percent, 13.25 percent, and 12.75 percent, respectively. Moreover, credit and discount rates downed to 12.75 percent.