World’s Deepest Rate Cuts Beckon in Egypt After Fed’s Pivot

CAIRO (Capital Markets in Africa ) – Monetary stimulus is needed to revive growth and attract foreign direct investment. Business activity in Egypt’s non-oil private sector slipped in February to its lowest level since September 2017. The central bank is still a long way from unwinding rate increases deployed to steady inflation after floating the currency in November 2016.

While price growth has since stabilized, however, it accelerated for a second month to an annual 14.4 percent in February on the back of rising food costs.

In its statement, the MPC said the latest spike in inflation was linked to food and it was holding rates to steady prices. “The MPC decided that keeping key policy rates unchanged is consistent with achieving the inflation target of 9 percent (+/- 3 percentage points) in 4Q 2020 and price stability over the medium term, it said.

“We expect the CBE to keep rates unchanged until the second half of the year, when it will resume its easing cycle,” said Ziad Daoud, Chief Middle East Economist for Bloomberg Economics in Dubai. 

Another factor weighing on policymakers may have been concern that further cuts would rattle investors who have shown renewed interest in the country’s local debt and the tempting yields on offer. Turkey’s lira has suffered another bout of volatility in recent weeks, possibly raising worries of contagion.

EFG-Hermes economist Mohamed Abu Basha, who had predicted a hold, said “recent emerging market volatility considering the Turkey events have also played a role in the decision, as it stopped the continuous” appreciation in the Egyptian pound since late January.

Source: Bloomberg Business News