Egypt: Central Bank stays put in September
September 29, 2017
At its 28 September monetary policy meeting, the Central Bank of Egypt (CBE) kept interest rates steady following substantial monetary tightening earlier this year in order to keep a lid on inflation. The overnight deposit rate was held at 18.75%, the overnight lending rate at 19.75% and the main operation rate at 19.25%. All decisions were in line with market expectations.
The move comes as inflation remains markedly above the Central Bank’s 10.00%–16.00% target band. Despite a slight dip in price pressures in August, partly due to a favorable base effect, headline inflation still came in above 30% for the second month running. Second-round effects of fuel and electricity subsidy cuts in June and July, respectively, could also fan the flames of inflation in the months ahead. In addition, the economy is strengthening. GDP growth reached a revised 5.0% year-on-year in Q4 FY 2017. This could lead to greater demand-pull inflationary pressures going forward. For these reasons, the CBE opted to keep rates unchanged, in order to anchor expectations and ensure that inflation declines towards the target.
The communiqué contained little forward guidance, although the Bank considered it was still on track to meet its target of reducing inflation to the target band by Q4 2018 and to single digits thereafter. FocusEconomics panelists largely concur, and expect inflation to be comfortably within the band by the end of next year. However, they expect it will take longer to reduce inflation to single figures. With inflation set to fall, there should be room for the Bank to loosen its monetary stance somewhat over the next twelve months to support the real economy.
The next monetary policy meeting will be held on 16 November.
Author: Oliver Reynolds, Economist