Egyp­tian in­fla­tion eases, paves way for looser mon­e­tary pol­icy


CAIRO (Reuters) – Egypt’s in­fla­tion dipped for the third month in a row in Oc­to­ber after hit­ting a record high on en­ergy price rises, leav­ing the cen­tral bank on course to be­gin loos­en­ing mon­e­tary pol­icy in the com­ing months, of­fi­cial data showed on Thurs­day.

In­fla­tion climbed steadily after the cen­tral bank floated the Egyp­tian pound last Novem­ber as part of re­forms to se­cure a $12 bil­lion In­ter­na­tional Mon­e­tary Fund loan, reach­ing a multi-decade high in July.

Egypt also jacked up in­ter­est rates after the pound was floated, and many lo­cal econ­o­mists ex­pect it to start cut­ting again in De­cem­ber or Jan­uary.

An­nual ur­ban con­sumer price in­fla­tion eased to 30.8% in Oc­to­ber from 31.6% the pre­vi­ous month.

Core in­fla­tion, which strips out volatile items such as food, fell to 30.53% from 33.26%.

“We re­it­er­ate our view of a lower an­nual read­ing of 18% by Jan­uary 2018, trig­ger­ing the first cut in in­ter­est rates,” Bel­tone Fi­nan­cial econ­o­mist Alia Mam­douh said.

In­fla­tion peaked in July after the gov­ern­ment raised fuel prices by up to 50% and elec­tric­ity prices by up to 42% in an ef­fort to cut state spend­ing.

Nar­row­ing the bud­get deficit is part of eco­nomic re­forms Egypt has em­barked on since it signed the IMF deal to re­vive an econ­omy that has strug­gled since a 2011 up­ris­ing drove away for­eign in­vestors and tourists.

The Egyp­tian pound has lost half its value since it was floated, while the cen­tral bank has in­creased key in­ter­est rates by 700 ba­sis points, at­tract­ing for­eign buy­ing in the coun­try’s do­mes­tic debt.

Some econ­o­mists be­lieve that an in­crease in global oil prices could put in­fla­tion back on an up­ward tra­jec­tory in Egypt and prompt the cen­tral bank to de­lay cut­ting in­ter­est rates.

“Re­gional ten­sions lead­ing to a sig­nif­i­cant in­crease in oil prices, along with an in­crease in the credit-de­fault swap of Egypt, might cause the CBE to post­pone the cuts un­til the vi­sion is more clear,” CI Cap­i­tal econ­o­mist Noa­man Khalid said.

Egypt has said there would not be an­other in­crease in en­ergy prices dur­ing the fi­nan­cial year that be­gan in July, but sub­sidy re­forms are part of the IMF pro­gram.

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