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Egypt Monetary Policy November 2020

Egypt: Central Bank cuts rates by 50 basis points for second meeting running in November

At its monetary policy meeting on 12 November, the Central Bank of Egypt (CBE) cut the overnight deposit, overnight lending and main operation rates by a further 50 basis points each, to 8.25%, 9.25% and 8.75% respectively. The move was the second cut in successive meetings—giving a total of 350 basis points of cuts since March—and came somewhat against the expectations of market analysts, the majority of whom had envisaged rates being held steady for another session.

The decision came amid a muted inflationary environment and a nascent economic recovery in the third quarter of 2020. Inflation clocked in at 4.5% in October and the Bank expects it to remain below the target floor of 6.0% towards the end of 2020. This, and the gradual recovery in activity—as evidenced by October’s PMI indicating that private sector conditions improved at the fastest pace in over five years—gave the Bank grounds for a further rate cut.

Looking ahead, the CBE stated in its communiqué that it would “closely monitor all economic developments and will not hesitate to utilize all available tools to support the recovery of economic activity, within its price stability mandate”.

Regarding the outlook, Farouk Soussa, economist at Goldman Sachs, noted:

“We believe there is scope for further easing in the next 12 months, particularly if vaccine promises materialise, a development that would further ease external financing risks. That said, we do not at this stage anticipate another cut when the committee meets in December, as the committee is likely to take a more gradual approach to easing in the face of rising inflation to year end and still ongoing uncertainty as the coronavirus pandemic continues to escalate globally.”

The next monetary policy meeting is set for 24 December.

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