CAIRO: Egypt’s central bank is likely to maintain interest rates at its meeting, a poll showed on Monday, although some analysts predicted a cut ahead of expected fuel price increases this summer.
Eight out of 12 economists polled said the bank’s monetary policy committee was unlikely to change its overnight rates, with deposits at 15.75 per cent and lending at 16.75 per cent.
Four analysts predicted that the Central Bank of Egypt (CBE) would cut rates by 100 basis points (bps), following a cut of the same size last month, which was the first since March 2017.
“We anticipate that the CBE will keep interest rates on hold this month due to the recent uptick in price inflation,” said Nadene Johnson, an economist at NKC African Economics.
“But considering the need for private sector stimulus, the CBE is expected to reduce rates by 100 bps before year end.” Headline inflation quickened in February to 14.4 per cent from 12.7 per cent in January. It had cooled to 12.0 in December from 15.7 per cent the month prior. The bank’s target range is 10 to 16 per cent.
Core inflation, which strips out volatile items such as food, also rose in February to 9.2 per cent from 8.6 per cent the previous month.
“The CBE I believe would need to capitalise on the cut that took place last month with another 1 per cent cut this month,” said Hany Farahat, senior economist at Egyptian investment bank CI Capital.
The Egyptian pound’s continued appreciation, sustained foreign inflows in treasuries and the US Federal Reserve holding rates all position Thursday’s meeting as a “golden window” for a further cut, he added.
Furthermore, an expected fuel subsidy cut in the summer, tied to an agreement with the International Monetary Fund, would naturally prevent the central bank from cutting rates in Q3, he said.
“And the meeting in Q2 is in May, which is very close to the subsidy cut decision,” said Farahat. “I would think right now is optimal.”
Egypt raised fuel and electricity prices last summer, reforms linked to a $12 billion IMF loan programme agreed in late 2016. Those measures included a currency float, fuel and energy subsidy cuts and the introduction of a value-added tax.
Remaining fuel subsidies are expected to be cut around mid-2019, and the petroleum minister said last month that Egypt would implement an automatic price indexation mechanism on 95 octane petrol starting in April. — Reuters
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