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The Central Bank of Egypt (CBE) left interest rates unchanged at its last policy meeting of the year on Thursday. The Monetary Policy Committee (MPC) cited a slowdown in global growth, easing inflation at home, and a decline in energy prices, it said in a statement (pdf). This comes as pundits anticipate a float or devaluation now that President Abdel Fattah El Sisi has secured his third term in office.
As they currently stand: The overnight deposit rate stands at 19.25%, the overnight lending rate at 20.25%, and the main operation and disc. rates at 19.75%.
Further slowdown in growth ahead: The CBE sees growth further decelerating in the fiscal year 2023-2024 before gradually picking up due to the “negative spillovers emanating from geopolitical tensions in the region, especially on the services sector.” Growth slowed to 2.9% in 2Q 2023 from 3.9% in the previous quarter, while annual growth decelerated to 3.8% in FY 2022-2023 from 6.7% the year prior, the statement reads.
And inflation has eased: Annual headline inflation eased for the second consecutive month in November to 34.6% — down from 35.8% in October — hitting its lowest level in six months on the back of slowing food price increases and a favorable base effect. Inflation is expected to further decline to 34.4% in December, securities banking and macro analyst Heba Monir told us last week.
The CBE’s move was expected: Seven of the nine analysts we surveyed last week predicted that the MPC would hold rates steady thanks to the slowdown in inflation and the US Federal Reserve’s decision to leave rates unchanged earlier this month. The other two saw the bank hiking rates between 50-300 bps to contain inflation.
Third time in a row: The central bank held interest rates steady during its past two meetings in November and September. Rates have risen 1.1k bps since March 2022, with the bank last hiking rates in August.
Keeping its powder dry: Analysts expect the central bank to go for a fourth devaluation since March 2022 sometime in the coming weeks — a move that is traditionally accompanied by a substantial rate hike. Flexibility in our FX regime is a key condition of our USD 3 bn IMF loan and will be key if we do want to unlock a larger package.
