EU plays for time as Johnson spars with UK parliament on Brexit    Shell Egypt to sell assets in Western Desert to focus on offshore exploration    Turkey and Russia to discuss removal of Kurdish militia from Syrian towns    Senegal's Generation Foot show up in Cairo for 'take-two' against Zamalek    WHO hails 'triumph' as Ebola vaccine gets European green light    Current and ex smokers may lower lung cancer risk with exercise    Live score: Manchester United v Liverpool (English Premier League)    Bayern Munich defender Suele sidelined with torn cruciate ligament    Canada's Trudeau, main rival trade attacks as campaign come to conclusion    Lebanon agrees final budget with no taxes to appease protesters    Russia-Africa Summit features historic friendship ties: Egypt's Sisi    Egypt's Sisi praises SCC's role in protecting justice, rights, freedoms    Leather exports fall 31.5% in 8 months due to global demand – official    Egypt's Qalaa Holdings to operate 100% of refinery units in January – official    Egypt is first destination for foreign investments in Africa: World Bank    France's President Macron receives Egypt's Coptic Pope Tawadros II at Elysee    Egypt inks deal with Euroclear Bank to upgrade public debt management    Egypt's Cooperative Insurance Society to cover NGOs clients' loans    After a young pupil dies of meningitis in Egypt, tips to help prevention    Turkey plans presence across northeast Syria: Erdogan    Egypt's PM urges US's ADTRAN Inc. to invest in communications equipment    French President Macron receives Egypt's Coptic Pope Tawadros II at Elysee    Egypt's Irrigation minister reviews latest developments of Ethiopia's Renaissance Dam in Budapest    'Passports should be valid for six months,' Egypt's foreign ministry advises citizens planning travel abroad    Grand Nile Tower Arts & Cultural Centre launches second round    Egypt's coach Hossam El-Badry satisfied with winning start despite technical problems    Luxor's new discoveries    Moroccan film Nomades scoops awards in Alexandria Film Festival    Toshiba's JV with Egyptian Elaraby opens regional HQ in South Africa    Six authors vie for Booker prize 2019, Atwood in the lead    In Photos: A sneak peek into rehearsals for the Cleopatra ballet world premiere    Sisi, Ethiopia's PM to meet in Moscow to discuss GERD issue    Sisi: army engaged in attrition phase against terrorism in Sinai since 2013    10K fans to attend Egypt's friendly against Botswana in Alexandria: EFA    Sisi, Ethiopia's PM agree to overcome obstacles in Nile dam talks    Farwell to Egyptian comic actor Talaat Zakaria    Court sentences six to death, 41 to lifetime imprisonment violence related case    Trump says he would release Mideast peace plan after Israeli elections    ACWA Power compares 3 bids to supply production units for Luxor power station    What do you know about gold alloying?    NBE announces EGP 2.5m prizes for handball youth teams for their world achievements    Jennifer Lopez evokes Egyptian outrage post her North Coast performance    Al-Sisi honours Egypt's scholars on Science Day    IS claims responsibility for suicide bombing killing 63 in Afghan wedding    Political parties gear up for parliamentary, senate, local elections    Unprecedented Glory: Egypt win Men's U-19 World Handball Championship    12th National Egyptian Theatre Festival fuel up public theatre art scene    Ministry of Environment has a plan for "black clouds season"    

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

An interest rate cut on the horizon?
Published in Al-Ahram Weekly on 14 - 02 - 2019

The annual inflation rate inched up in January to 12.7 per cent compared to 12 per cent in December, Sherine Abdel-Razek reports. The hike in rates was fed by the continued increase in vegetable prices due to the cold weather and its effect on the supply of certain crops.
Vegetable prices increased from 21.3 per cent in December 2018 to 28.9 per cent in January 2019. Moreover, prices of bread and cereals also increased from 22.2 per cent in December to 24.1 per cent in January. Together, vegetables and bread represent almost 27 per cent of the total food basket. The food basket represents 40 per cent of the overall basket of commodities that are used to calculate inflation rates.
The month-on-month increase in prices reached 0.8 per cent, a significant surge when compared to a decline of 4.1 per cent in December.
The increase in inflation rates raises questions about the outcome of today's meeting of the Central Bank of Egypt's Monetary Policy Committee (MPC).
The MPC has kept rates unchanged since March when it reduced overnight deposit and lending rates one per cent each to 16.75 per cent and 17.75 per cent respectively.
The bank's decision to keep the rate sent a clear message that it will not move rates as long as the targeted inflation rate is not realised. In 2018, the CBE said it targeted inflation to reach 13 per cent plus or minus three percentage points by the fourth quarter of 2020. The bank recently set nine per cent, plus or minus three per cent, as its new inflation target.
The January inflation figure came against the hopes of a further decline in inflation that would encourage the CBE to resume its easing monetary policy, which means lowering interest rates, with tranquility, according to a note by Prime Holdings.
However, according to Beltone Financial, the slight inch-up in inflation reading does not pose risks to inflation outlook and, therefore, it expects inflationary pressures to remain subdued over the first half of 2019.
With recent positive developments, including the rebound in foreign inflows to the Egyptian debt market, the Federal Reserve keeping interest rates unchanged, improvement in tourism revenues, receiving the fourth trench of the IMF loan and the upcoming euro bond issues, the time couldn't be more suitable for a rate cut.
Also, the need to stimulate domestic demand by lowering interest rates has become crucial, given the unstable global economy and trade hostility that governs current international trade, said Prime.
Thus, it added, there is room for the CBE to resume cutting interest rates in today's MPC meeting with an anticipated 0.5-1 per cent cut, sending a message of tranquility to markets and curtailing the ballooning interest payment on public debt.
Egypt offers the second highest yield on treasuries among emerging markets, second only to Argentina.
However, most observers agree that the MPC won't cut rates today and will wait until its next meeting on 28 March before taking the step. “We place a lower bet on this meeting,” said Pharos Holdings research. Beltone Finance agrees.
Beltone stressed that the inflation reading in January and February are main determinants for MPC action towards interest rates in the first half of 2019. Other important factors to be considered are the inflows in the treasuries in February, confirming renewed investor appetite in Egypt's debt and the rate of depletion in net foreign assets of banks which started to ease in December 2018, defining the need to support the local currency.
It is notable though that the cut in interest rates might result in some pressure on the pound, according to Pharos, but “with the current strength in the exchange rate, any potential emerging pressure will not push the exchange rate higher than the LE18 mark, and consequently will not impact inflation,” it noted.

Clic here to read the story from its source.