CAIRO: Egypt’s central bank on Thursday cut its key interest rates for the second month in a row, after inflation fell further and as central banks globally ease monetary policy.
The overnight deposit and lending rates were cut by 100 basis points to 13.25% and 14.25% respectively.
All 11 economists surveyed by Reuters had said the Central Bank of Egypt’s (CBE) monetary policy committee would cut rates. Five said the bank would cut by 100 bps, three predicted a 150 bps cut and three 50 bps.
“It’s good for the economy, but broadly in line with expectations,” said Allen Sandeep, head of research at Egypt-based Naeem Brokerage, which predicted a 150 bps cut.
“We expect the monetary easing cycle to continue as inflation is likely to drop further before the MPC meets again in November,” Sandeep said.
The central bank cut rates after inflation figures fell to their lowest in more than six years, it said in a statement.
“Globally, the expansion of economic activity continued to weaken, financial conditions eased, and trade tensions continued to weigh on the outlook,” the bank said. “International oil prices remain subject to volatility due to potential supply-side factors that include geopolitical risks.”
July inflation came in significantly below expectations, and the headline figure fell further in August to a six-year low of 7.5%. Headline inflation reached a 2019 high of 14.4% in February.
At its last policy meeting in August, the central bank slashed its overnight deposit and lending rates by 150 basis points to 14.25% and 15.25% respectively.
The low July inflation figures took analysts by surprise as they had expected inflationary pressures to rise in the wake of a round of subsidy cuts that pushed fuel prices 16-30% higher.
The fuel price hikes were the last in a series of subsidy cuts tied to a three-year $12 billion loan from the IMF. Other reforms tied to the deal included devaluing the currency by about half and introducing a value-added tax.
The reforms have made Egypt an emerging market darling, and economists have hailed the measures. But millions of Egyptians are still struggling to make ends meet, despite the more positive economic data.
“It could have been more but I’m glad the MPC cut the rates. It is a good move,” said Angus Blair, chairman of business and economic forecasting think-tank Signet.
“It will not affect the economy too much as Egypt’s household and corporate sectors are not too leveraged,” he said. “It will, however, help to bring down the government’s debt burden and give it greater fiscal maneuverability.”
The bank’s decision to make a second consecutive cut came after Egypt’s main stock index suffered heavy losses between Sunday and Tuesday following rare weekend protests against alleged government corruption.
The benchmark EGX30 index rebounded, gaining 3.2% on Wednesday and 1.9% on Thursday.