Cityscape in Egypt

Egypt Monetary Policy August 2019

Egypt: Egypt axes interest rates in August as inflation falls to near four-year low

The Central Bank of Egypt (CBE) slashed all interest rates by 1.5 percentage points at its monetary policy meeting on 22 August, catching most market analysts by surprise. Therefore, the overnight deposit rate dropped to 14.25%, the overnight lending rate to 15.25% and the main operation rate to 14.75%.

The Central Bank’s move came after inflation data released earlier in August showed inflation moderated more than expected in July, declining to 8.7% from 9.4% in June and representing the lowest reading in nearly four years. This was despite a cut in government fuel subsidies. With inflation seemingly well under control within the Central Bank’s 6–12% target range and major central banks turning more accommodative recently, the Central Bank of Egypt appeared well placed to make its move.

The CBE said the future for interest rates will depend on inflation expectations, rather than just prevailing inflation rates, noting: “the pace and magnitude of future policy rate adjustments will continue to be subject to confirmation that inflation expectations are anchored at target levels”. That said, most of our panelists see interest rates continuing on a downward trend in the short-term.

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