Egypt slashes rates after inflation slows down
Egypt's July headline inflation surprisingly slowed to 8.7 per cent from 9.4 per cent in June.
Cairo - Second consecutive cut in policy rates necessar to mark resumption of monetary easing cycle, analysts say
Egypt's central bank late on Thursday cut the overnight deposit rate by 150 basis points to 14.25 per cent, its first cut since February, after July inflation figures came in significantly below expectations.
The overnight lending rate was cut by 150 basis points to 15.25 per cent, the bank said in a statement after a meeting of its monetary policy committee.
Seven out of 13 economists polled by Reuters had forecast the bank would cut overnight rates by 100 bps. Three had predicted a 150 bps cut.
The move came after headline inflation slowed to 8.7 per cent in July from 9.4 per cent in June, surprising analysts who had expected inflationary pressures to rise in the wake of a round of subsidy cuts that pushed fuel prices 16-30 per cent higher.
"The drop in inflation emboldened them to go deeper," said Maya Senussi, senior economist for the Middle East at Oxford Economics. "The decision also probably reflected low trending oil prices," she said. "And the assumption that the second-round inflationary impact of the subsidy cuts will be limited."
Analysts expect further rate cuts, with Egyptian investment bank CI Capital forecasting a 1 per cent cut in September.
A second consecutive cut in policy rates was necessary, it said, to mark the resumption of a monetary easing cycle and so as not to disappoint local and global investors.
"As incoming data continued to confirm the moderation of underlying inflationary pressures, the MPC decided to cut key policy rates by 150 basis points," the bank statement said. "The path for future policy rates remains a function of inflation expectations, rather than of prevailing inflation rates," it added.
Hany Farahat, general manager and head of market intelligence at Banque Misr, called the decision "a clear signal of confidence in Egypt's outlook, and a turning point towards an awaited higher post-IMF growth cycle". - Reuters
The Egyptian pound has appreciated about 7 per cent against the dollar since the beginning of the year.