Egypt: Egypt cuts rates in September after inflation plummeted in August
September 26, 2019
The Central Bank of Egypt (CBE) slashed interest rates by one percentage point at its monetary policy meeting on 26 September, as had been broadly expected by market analysts, following a 1.50 percentage-point cut on 22 August. The overnight deposit rate now stands at 13.25%, the overnight lending rate at 14.25% and the main operation rate at 13.75%.
The CBE’s move came after inflation moderated substantially in August, slowing to 7.5% from 8.7% in July to mark the lowest reading since January 2013. Lower prices for food and beverages in August outweighed higher prices for transport, which continued to be stoked by the government’s cut in fuel subsidies in July. With inflation well within the CBE’s 6.0–12.0% target range and major central banks turning more accommodative recently, the CBE had space to cut rates.
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.
Author: Edward Gardner, Economist