Egypt holds interest rate amid sell-off

Monetary Policy Committee keeps the deposit rate at 16.75%

Egypt’s central bank on Thursday kept its benchmark interest rate unchanged for the third consecutive meeting as inflation stabilised, a move that might shore up the attractiveness of local bonds amid a sell-off in emerging-market assets.

The bank’s Monetary Policy Committee kept the deposit rate at 16.75 per cent while the lending rate remained at 17.75 per cent. All 11 economists in a Bloomberg survey had predicted a hold. The decision indicates the central bank won’t resume the easing cycle begun earlier this year before it’s confident that inflationary pressures from June’s subsidy cuts have completely abated.

The headline inflation outlook remained in line with the bank’s target, and the MPC “decided that keeping key policy rates unchanged remains consistent with achieving this inflation outlook and target path,” the central bank said in a statement.

Headline inflation slowed to 13.5 per cent in July, well within the central bank’s target band of 13 per cent (+/- 3 percentage points). Core inflation, which strips out volatile items such as foods, decelerated to 8.54 per cent — its lowest level since March 2016.

Local currency Treasurybills have attracted more than $20 billion (Dh73.45 billion) since the 2016 decision to float the Egyptian pound, which in turn enabled a $12 billion loan from the International Monetary Fund. But appetite has waned after the crisis stalking Turkey’s lira triggered a sense of investor panic across emerging markets.

“External risks have recently resurfaced, led by contagion fears from the ongoing currency crisis in Turkey,” Cairo-based Naeem Holding said in a note on Thursday. “From Egypt’s perspective, we already observe a sizeable decline in foreign investors’ appetite in recent treasury auctions.”