Research firms are expecting the Central Bank of Egypt's Monetary Policy Committee to cut interest rates again this Thursday on the back of further inflation easing, according to statements by EFG Hermes, HC Securities and Pharos Securities. Both Pharos Securities Brokerage and HC Securities expect a 100 basis points (bps) rate cut, while EFG Hermes expects a rate cut between 50 and 100 bps. “The drop in headline and core inflation figures to the target level (13% YoY +/-3%) is a comfort factor for the CBE to make another cut in policy interest rates,” Pharos' Mahmoud El Masry said in a statement issued Sunday. Annual headline inflation fell to 14.4 percent in February from 17.1 percent in January, the lowest since October 2016, and core inflation to 11.9 percent in February from 14.4 percent in January. The central bank is targeting an inflation of 13 percent (± 3 percent) in Q4 2018 and single digits after that. “We maintain our view of another 50-100bps of rate cuts before the CBE takes a pause to assess the impact of its two rounds of monetary easing on key monetary aggregates,” EFG Hermes' Mohamed Abu Basha said earlier this month, according to a statement. EFG Hermes expects inflation to stabilise around 13 percent in the second half of the year, when further energy subsidy cuts are planned to be implemented. Another factor pointing at a rate cut is the gap between the inflation and the deposit rates, according to Pharos. The deposit rate is defined as the money paid out in interest by a bank on cash deposits and is positively correlated to the inflation rate. “We expect the CBE to cut the policy rates in order to slightly narrow the gap between the inflation rate and the deposit policy rate, which had started to expand from October 2017,” according to Pharos. Moreover, Pharos said monetary easing has officially started, given that economic activity has picked up as shown by growth rates, export increases, and consumer spending. HC Securities' Sara Saada says next July's subsidy cuts are not likely to deter the central bank from its expansionary monetary policy and will not affect the targeted inflation rate in the last quarter of the year, according to a statement picked up by Al-Ahram Economics. Saada stressed the importance of the expansionary measures to encourage investments and on GDP growth. The Central Bank of Egypt began to ease monetary policies when it cut interest rates on February 15 by 100 bps, driven by the easing of inflation, lowering overnight deposit rate to 17.75 percent from 18.75 percent, and the overnight lending rate to 18.75 percent from 19.75 percent. By February, the Central Bank had raised interest rates by 700 basis points since it floated the EGP in November 2016 to curb high inflation rates.
