Egypt set to hold rates; division over moves in coming months
Egypt’s central bank is seen holding interest rates steady tomorrow, a Reuters poll showed, and economists expect it will wait to gauge the impact of a surprise rate hike this month and might then move rates in either direction. On Nov. 3, the bank ditched its peg of 8.8 per dollar and hiked rates by 300 basis points to stabilize the newly floated pound. Its initial guide level was 13 to the dollar and on Tuesday it allowed the pound to drift to about 15.50.
The move has helped Egypt secure a $12 billion loan from the International Monetary Fund to support a plan to overhaul its dollar-starved economy and unlock foreign investment. All 15 economists polled by Reuters expected the monetary policy committee (MPC) on Nov. 17 to hold overnight deposit rates at 14.75 percent and overnight lending rates at 15.75 percent. Their forecasts for the next few months were divided. Some expect a cut by the end of the year while others expect more hikes. Most expect the central bank to wait and see what effect floating the pound and raising rates has before it acts. “The central bank has already taken some action to counter stronger price pressures stemming from a weaker currency,” Capital Economics said in a research note.
“Rates have now been raised by a cumulative 550 basis points this year. Accordingly... policymakers are likely to stand pat at this month’s meeting and await evidence of the impact from the pound’s float.” Egypt’s core inflation jumped in October but annual urban consumer price inflation eased for the second consecutive month after hitting an eight-year high in August.
As part of its deal with the IMF, however, the government is pushing through with economic reforms that are expected to raise inflation. It has imposed a Value Added Tax, cut electricity subsidies and raised fuel prices in the last few months alone. Among those polled, Capital Economics forecasts an additional 150 basis point rate hike over the next six to 12 months while Signet Institute, a Cairobased think tank, expects a reduction toward the end of this year. — Reuters