Egypt Inflation Enters Post-Float Target Range for First Time

TUNIS (Capital Markets in Africa) – Inflation in urban parts of Egypt slowed to a 17-month low, for the first time entering a broad target range the central bank set after floating the currency in November 2016.

The annual rate eased to 14.4 percent in February, from 17.1 percent a month earlier, the state-run statistics agency said. As prices soared following the decision to lift currency controls, the central bank had announced a target of 13 percent plus or minus three percentage points. The flotation, unveiled along with a fuel price hike, was aimed at ending a business-crippling dollar shortage.

Annual core inflation, the measure used by the central bank in making its rate decisions, eased to 11.88 percent in February, compared to 14.35 percent in January. The central bank cut its benchmark interest rate by 100 basis points last month, chipping away at the seven-percentage-point increase it had presided over since the flotation.

In a sign that seasonal factors were emerging, consumer prices inched up 0.3 percent on a month-on-month basis in February. Food prices tend to rise ahead of the holy month of Ramadan, which begins in mid-May this year.

The “increase is expected on a month-on-month basis” as Ramadan approaches and summer nears, independent economist Reham El Desoki said.

Curbing inflation that had spiked to over 33 percent following the floating of the pound has been a key priority for the central bank, and El Desoki said she expected rate cuts to be gradual and slow.

The regulator could either make another small cut in interest rates at its March 29 meeting, she said, or hold them steady until fuel prices are raised again in the new fiscal year beginning in July.

The central bank will likely “adopt a conservative approach to monetary easing,” depending on liquidity, she said.

Source: Bloomberg Business News