Egypt: Central Bank holds rates unchanged at second successive meeting in February
February 4, 2021
At its monetary policy meeting on 4 February, the Central Bank of Egypt (CBE) left the overnight deposit, overnight lending and main operation rates unchanged at 8.25%, 9.25% and 8.75% respectively. The decision marked the second hold in successive meetings following a total of 400 basis points of cuts since March 2020, and was in line with market analysts’ expectations.
The hold came amid relatively benign inflationary pressures towards the end of 2020, with inflation clocking 5.2% in Q4 and thus coming in below last year’s target floor of 6.0%. The Bank put the deviation down to the impact of the Covid-19 pandemic, with government measures to avoid food shortages contributing to lower-than-expected inflation. Moreover, the decision came amid a gradual recovery in activity—preliminary data for July–September indicated the economy grew 0.7% in annual terms (April–June: -1.7% yoy)—which likely gave the Bank further room to take a wait-and-see approach.
Looking ahead, the CBE stated in its communiqué that it “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 and Rositsa Chankova, analysts at Goldman Sachs, commented:
“We believe there is scope for further easing in the near term, particularly if vaccine commitments materialise, a development that would further ease external financing risks. In our view, inflation will remain [subdued] as a result of sluggish domestic demand, a strong Pound and continued public management of domestic food supplies. […] Despite the recent reduction of the inflation target to 7% ± 2pp, our expectations of low inflation, an improving global risk environment, and still historically high real rates underpin our view on Egypt policy rates, which we think may be lowered by another 100bp in H1 of this year.”
The next monetary policy meeting is set for 18 March.
Author: Stephen Vogado, Economist