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The Central Bank of Egypt (CBE) kept interest rates steady at its next-to-last policy meeting of the year. The Monetary Policy Committee (MPC) on Thursday kept its overnight deposit rate at 19.25% and overnight lending rate at 20.25%, it said in a statement (pdf) following the meeting, despite inflation continuing to run hot. The main operation and disc. rates were both held at 19.75%. The announcement comes as pundits expect the central bank to fully float the EGP after the presidential election scheduled for next month.
What they said: The MPC said that it will base future policy decisions on inflation forecasts rather than recent data, but noted that annual core inflation has eased for the past three months. Inflation soared to a fresh record high in September on the back of a succession of currency devaluations and seasonal factors.
Analystssaw this coming: Six out of nine analysts we surveyed last week predicted that rates would remain stable. Interest rates have become a less effective policy tool to curb inflation and felt that relatively stable inflation would factor into the CBE’s calculus. After big hikes last year, the central bank has brought rates up by by just 100 bps over the past seven months.
Devaluation looming, rate hikes might follow: “The Central Bank of Egypt will hike more aggressively closer to the currency adjustment, likely in 1Q 2024,” Ramona Moubarak, Fitch Solutions' director of MENA country risk, told Enterprise. Headline inflation is expected to slow between October 2023 and February 2024 ahead of the devaluation, she added.
The war in Gaza may also slow the economy + curb inflation: We may be looking at a “deflationary shock” from a declining natural gas supplies and a potential drop-off in tourism stemming from the war on Gaza, Bank of America Middle East and North Africa economist Jean-Michel Saliba told Bloomberg. This will contribute to the central bank leaving interest rates on hold until the devaluation, which he also expects to take place in 1Q 2024.
The international press also had the story:Bloomberg | Reuters.
