Egypt’s central bank unexpectedly keeps rates unchanged in Sept

CAIRO, Capital Markets in Africa: Egypt’s central bank kept its key interest rates unchanged at a monetary policy meeting on Thursday, confounding a unanimous forecast by analysts that it would hike borrowing costs to curb inflation.

Egypt has been struggling to revive its economy since a 2011 revolution drove away tourists and foreign investors, its main sources of vital foreign currency. Its reserves have more than halved since, to around $16.5 billion in August.

The government has been pushing through economic reforms including energy subsidy cuts and a value-added tax. Applied this month, the tax is expected to drive up inflation, which hit its highest level for almost eight years in August.

All 12 contributors to a Reuters poll had said they expected the monetary policy committee (MPC) to raise rates on Sept. 22, with the forecast increases ranging from 50 basis points to 200.

The central bank instead kept its overnight deposit rate at 11.75 percent and its overnight lending rate at 12.75 percent.

“The current level of inflation and future upside risks are largely explained by transitory cost-push factors, while demand-side factors continue to pose downside risks to the inflation outlook,” the central bank said in a statement.

“Given the balance of risks, the MPC judges that the key CBE rates are currently appropriate.”

The central bank has already raised key policy rates by a total of 250 basis points this year but bankers say much more is needed to curb inflation, which jumped to 15.5 percent in August.

President Abdel Fattah al-Sisi is under growing public pressure to stem the price rises and revive the flagging economy.

Market expectations of another devaluation this year have intensified since the International Monetary Fund agreed in principle last month to a $12 billion three-year loan facility to support the government’s economic reform programme.

Egypt devalued the pound by almost 14 percent in March to about 8.78 to the dollar in a bid to crush a black market that has burgeoned amid an acute shortage of foreign currency.

The effects were short-lived, however, and the pound is again under pressure, trading on the black market at 40 percent weaker than the official rate.

The Egyptian economy grew about 4.2 percent in the last July-June fiscal year and government forecasts put growth this year at around 5 percent. Analysts polled by Reuters expect GDP to grow around 3.5 percent.