Egypt: CBE leaves rates unchanged for third consecutive meeting despite soaring inflation
February 16, 2017
At the 16 February monetary policy meeting, the Central Bank of Egypt (CBE) continued its wait-and-see approach and left all main interest rates unchanged for the third consecutive meeting as authorities envisage that the current surge in inflation will be short-lived. As a result, the overnight deposit rate currently sits at 14.75%, the overnight lending rate at 15.75% and the main operation rate at 15.25%.
The Central Bank is currently facing the dilemma of bringing down inflation without derailing economic growth. In January, inflation skyrocketed to the highest level since 1989 as November’s decision to free float the pound and the implementation of the IMF’s measures in order to clinch a USD 12 billion rescue plan are reverberating across the economy. The Bank affirms that the negative spillovers of the economic reforms will subside gradually in the coming months and that no further hikes are necessary as the CBE increased all of the main interest rates by 300 basis points on 3 November 2016.
A rapid acceleration in inflation, coupled with a weakening currency, will force the Central Bank to step in and tighten its monetary policy further in the near future. Stronger economic data and improving macroeconomic conditions could be other factors that accelerate the timing and pace of the rate hikes. In this regard, the Bank stated that the Committee, “will continue to closely monitor all economic and monetary developments, and will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term.” The next monetary policy meeting is scheduled for 30 March.
Author: David Ampudia, Economist