Egypt's NBE, Banque Misr collect EGP 705 bln from high-yielding CDs issued on March 21    Gold prices in Egypt on May 24    Saudi Arabia's Mouwasat signs MoU to acquire Egypt's Al-Marasem International Hospital    Egypt to inaugurate new Sphinx International Airport in mid-July    Turkey's finance minister to visit Egypt for first time in 9 years    Finland and Sweden formally apply to join NATO alliance    Saudi Arabia prolongs Yemen central bank's deposit    Egypt Knauf launches its first training centre in Egypt    Egypt uncovers official logo for COP27    Noura Al-Mutair – first Gulf female boxer in World Championships    Egypt unveils 50 pound coin minted to mark Avenue of Sphinxes grand reopening    Liverpool fans: "You'll Never Walk Alone" to Cristiano Ronaldo    Hot, rainy weather hits Egypt this week    COVID-19 in Egypt: infections fall to 124 cases last week    Egypt to play key role in integrating water, climate issues globally – World Bank official    Egypt's telecoms regulator announces working hours for holy month of Ramadan    Maha karara joins AAIB as Head of Corporate Communications, Sustainability    Egypt works on charting cooperation strategies with international institutions for 5 years: Al-Mashat    Over 2.4 million newborns examined for hearing impairment: Health Ministry    Netflix releases trailer of Arab adaption of 'Perfect Strangers' film    Balqees to headline concert celebrating launch of streaming giant LIVENow in MENA    Sawsan Badr to be honoured at Aswan Women Film Festival    MP Abdel Hady Al-Qasby calls government to facilitate and support NGOs    Al-Sisi follows up on 'Great Transfiguration Project' in St. Catherine    Cairo, London stress need to strengthen cooperation to face climate change    Foreigners account for 22.6% of Egypt's T-bills issuances in 1H 2021: CBE    Egypt's ambassador to Italy passes away    Egypt confirms readiness to help African countries face terrorism and extremism    An estimated 235 million people needed humanitarian assistance and protection in 2021, an increase of 40% compared to 2020: IOM Egypt    Egypt, DRC discuss water cooperation during WYF    Egypt, DR Congo discuss boosting bilateral cooperation during WYF    Cameroonian police probe assault on three Algerian journalists covering AFCON    Pharaohs start AFCON 2021 campaign with fierce clash against Nigeria    Foreign Ministry opens capacity building course for French-speaking African diplomats    Egypt's trade with Nile basin countries climbs 26% y-o-y in 9 months    Ethiopia halts work at its embassy in Egypt for 'economic reasons'    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Inflation rises in Egypt: Prospects for interest rate cut
Published in Ahram Online on 14 - 03 - 2019

Egypt's annual headline inflation rose to 14.4 per cent in February, compared to 12.7 per cent in January, a three-month high. Month-on-month inflation rose by 1.7 per cent in February, compared to 0.6 per cent in January, a statement from the Central Bank of Egypt (CBE) said this week.
The rise was mainly driven by higher food prices, particularly of vegetables. Vegetable prices increased by 28.9 per cent in January and 39.9 per cent in February this year.
The hike in inflation could make it harder for the CBE to continue its easing cycle on interest rates, calling into question any further cut at the Monetary Policy Committee's (MPC) meeting later this month.
The CBE resumed its easing cycle in last month's MPC meeting, lowering the overnight deposit and lending rate by one per cent to 15.75 per cent and 16.75 per cent, respectively.
The cut was the first in almost a year, and it came as a surprise to many economists who had expected the CBE to leave rates unchanged because the headline inflation rate had increased in January.
However, despite the hike in the inflation rate, it remains within the CBE's target of 13 per cent plus or minus three per cent for the first half of 2019.
Economists are split over whether the increase in inflation in February will prevent another cut in interest rates this month. Some say the hike in the inflation rate reduces the chances of another interest-rate cut this month.
Investment bank Arqaam Capital said in a note that it expected the MPC to keep rates on hold at its upcoming March meeting, ahead of the expected fuel-price adjustment set for April and the almost full phasing out of fuel subsidies by mid-2019. It expected the easing cycle to resume in the second half of the year.
But investment bank Pharos Holding foresaw another one per cent cut in rates in the upcoming March meeting, citing two factors that could prompt the CBE to press ahead with the cut.
“If a rate cut is not made at this meeting, there will be no window for rate cuts except six months down the line on 26 September,” Pharos said in a note. This is because the expected subsidy cuts in June will mean that inflation will most likely go up, preventing a subsequent rate cut.
Pharos added that the government's new debt-control strategy, which incorporates reducing debt servicing as a percentage of total budgetary expenses, “does need a rate cut and the six months window is long enough to create some savings for the budget.”
The Finance Ministry has embarked on a comprehensive debt-reduction strategy that aims to reduce debt to 80 per cent of GDP by 2022, a statement from the ministry said this week.
Pharos also cited high demand from foreign investors for government treasury instruments and the consequent influx of US dollars into the Egyptian banking system as meaning that investors would continue to inject portfolio investments in Egypt even after another one per cent cut.
Research firm Capital Economics was of a similar opinion, saying that subdued core price pressures and strong capital inflows meant that an interest rate cut was still more likely than not.
It said the CBE had placed growing emphasis on core price pressures, which remained relatively subdued, and foreign capital inflows had continued to hold up well. Foreign investors have remained net purchasers of Egyptian stocks and government bonds in recent weeks.
The CBE may also want to lower interest rates before attention turns to upcoming subsidy cuts, it said, predicting a 50 basis points reduction in interest rates at this month's MPC meeting.
“Regardless of whether or not interest rates are lowered at this meeting, we maintain our long-held view that Egypt's easing cycle has much further to run in 2019-20,” Capital Economics said.
The CBE had left interest rates unchanged since May 2018 due to inflationary pressures resulting from subsidy cuts in 2017/2018. The first cut came last month.
*A version of this article appears in print in the 14 March, 2019 edition of Al-Ahram Weekly under the headline: Inflation rises


Clic here to read the story from its source.