Egypt’s CB holds interest rates

Egypt’s central bank left its key interest rates unchanged, unexpectedly halting an easing cycle that began in August. The bank kept its deposit rate steady at 12.25% and its lending rate at 13.25%, the bank’s Monetary Policy Committee (MPC) said in a statement.

Eight out of 11 economists surveyed by Reuters had expected the bank to cut rates. Of those, four saw a 50 basis point cut and four a 100 bps cut.

The bank cut rates at each of its previous three MPC meetings as inflation abated, with urban consumer price inflation decelerating to as little as 3.1% in October.

But in December, inflation rebounded to 7.1% year-on-year from 3.6% in November as favourable base-year effects wore off.

“Following the cumulative reduction of 350 basis points over the previous three MPC meetings, the MPC decided that keeping key policy rates unchanged remains consistent with achieving the inflation target of 9 per cent (±3 per centage points) in 2020 Q4 and price stability over the medium term,” the statement said.

Allen Sandeep, head of research at Naeem Brokerage, said the surprise hold in rates was likely caused by the 3.5% increase in inflation.

“This means that the central bank, faced with a close call, continues to choose the conservative path when it comes to monetary policy,” he said.

Economist Mohamed Abu Basha of EFG Hermes said a rise in international oil prices may also have caused the MPC to remain cautious.

“We still think though they have room to cut rates in 2020 as real rates still remain high with inflation at 6-7%,” he said. The MPC meeting was postponed by three weeks to Jan. 16 pending the confirmation of committee members under governor Tarek Amer’s second four-year term.

Reuters