CBE keeps interest rates unchanged during February

CAIRO – 20 February 2020: 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 its second meeting in 2020 amid mixed expectations from experts and analysts.

The overnight deposit rate, the overnight lending rate, and the rate of the main operation are kept at 12.25 percent, 13.25 percent, and 12.75 percent, respectively.

Moreover, credit and discount rates are at 12.75 percent from 13.75 percent.

“Keeping [interest] rates unchanged is a more likely scenario, especially in view of the global jitters in the wake of the coronavirus outbreak," Shuaa Securities said in a recent report. However, the report expected a 200-basis point cut before the end of 2020.

The report clarified that the current underlying monthly price acceleration will be on the CBE’s radar screen when deciding on interest rates on February 20, noting that the Central Bank of Egypt’s (CBE) easing resumption may take other forms.

“We think easing could show up in other forms, similar to the CBE’s decision to raise the installment-to- income ceiling for consumer loans. We think the CBE has other ammunition, one of which is a possible cut in the required reserve ratio (RRR),” it noted.

On the other hand, 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.

Capital Economics 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.

As per the inflation rates, Shuaa reiterated its view that annual inflation readings in Egypt will range between 6-8 percent at normal times, expecting that pattern to prevail in most of the readings of the current fiscal year (FY2019/20).

“This is assuming no major surprises in terms of supply shocks for fruits and vegetables in particular.”

Egypt's 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.

Shuaa noted that January’s monthly inflation is the first positive monthly inflation reading since October 2019 and the second in five months, saying that causes are clearly visible in light of the upping witnessed in the food and non- alcoholic beverages group.

According to Shuaa, January’s rise in inflation, which is the third in a row, means that the MPC meeting in February 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.