Egypt inflation eases; rates cut
cairo — The Egyptian central bank cut its main interest rates by a percentage point each, the first time it has lowered them since letting the currency float freely in 2016, as inflation sinks to its lowest levels in at least a year.
The bank cut its overnight deposit rate to 17.75 per cent from 18.75 per cent and its overnight lending rate to 18.75 per cent from 19.75 per cent, it said in a statement. Economists welcomed the move and said they expect another cut in March.
Since it allowed the pound to float freely in foreign exchange markets in November 2016, the bank has raised overnight rates by 700 basis points to combat soaring inflation. That has generated huge demand for Egypt’s domestic debt, but it has also slowed business down by driving up borrowing costs.
“As incoming data continued to confirm the moderation of underlying inflationary pressures, the MPC [Monetary Policy Committee] decided to cut key policy rates by 100 basis points,” the bank said.
Inflation rates peaked at a record high of around 35 per cent in July in the wake of energy subsidy cuts, but they have gradually eased since, falling to their lowest levels in more than a year in January.
Annual urban consumer price
a 1% cut is a great signal for investors that the tightening of monetary policy has ended Noaman Khalid, Economist at CI Capital Asset Management
inflation eased to 17.1 per cent in January from 21.9 per cent the previous month, while annual core inflation, which strips out volatile items, fell to 14.35 per cent from 19.86 per cent. “The MPC closely monitors all economic developments and will not hesitate to adjust its stance to achieve its mandate of price stability over the medium term,” the bank said.
Economists said the move would have a positive impact on the market.
“A one per cent cut is a great signal for investors that the tightening of monetary policy has ended and also a conservative approach which is highly needed in order to test market activity moving forward,” Noaman Khalid, CI Capital Asset Management economist, told Reuters after the cut.
He said he expected another cut of 100 basis points at the bank’s next policy meeting, scheduled for March 29. —