Egypt cuts rate 100 bps as inflation continues to decline

September 26, 2019

By CentralBankNews.info

Egypt’s central bank cut its key interest rates by another 100 basis points and reiterated its guidance that the pace and magnitude of future changes will continue to be based on inflation expectations that are anchored at target levels that are consistent with disinflation and price stability.

The Central Bank of Egypt (CBE) has now cut its benchmark overnight deposit rate policy by 350 basis points this year following cuts in February and August, and by 550 points since February 2018 when it moved into an easing cycle in response to slowing inflation.

The rate cut was widely expected by analysts after inflation in August fell to a 6-year low of 7.5 percent from 8.7 percent in July, confirming the bank’s expectation that inflationary pressures are moderating and consistent with its aim of achieving an inflation target of 9.0 percent, plus/minus 3 percentage points in the fourth quarter of 2020.

Egypt’s inflation rate surged to 33 percent in July 2017 after the Egyptian pound was floated in November 2016 as part of a $12 billion agreement with the International Monetary Fund (IMF) that included a roll back of fuel subsidies and the introduction of a valued-added tax.

After the 2011 uprising, Egypt’s economy took a sharp hit but since mid-2016 the economy has been steadily strengthening and CBE said growth in the second quarter of this year of an estimated 5.7 percent and in fiscal 2018/19 of 5.6 percent was the highest in 11 years.


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Unemployment has also been steadily declining and fell to 7.5 percent in the second quarter, down almost 6 percentage points from its peak in the fourth quarter of 2013.

Egypt’s pound has been steadily rising this year and was trading at 16.31 to the U.S. dollar today, up 9.8 percent since the start of this year, helping contain import prices and thus inflation.
CBE cut its benchmark overnight deposit rate, the overnight lending rate, the rate on its main operation and its discount rate to 13.25 percent, 14.25 percent, 13.75 percent and 13.75 percent, respectively.

    The Central Bank of Egypt issued the following press release:

“The Monetary Policy Committee (MPC) decided to cut the Central Bank of Egypt’s (CBE) overnight deposit rate, overnight lending rate, and the rate of the main operation by 100 basis points to 13.25 percent, 14.25 percent, and 13.75 percent, respectively. The discount rate was also cut by 100 basis points to 13.75 percent.
Annual headline and core inflation continued to decline to record 7.5 percent and 4.9 percent in August 2019, respectively, the lowest rates in more than six years. The decline continued to be supported by the containment of inflationary pressures as well as favorable base effects, as monthly inflation recorded 0.7 percent in August 2019 compared to 1.8 percent in August 2018.
Real GDP growth continued to increase slightly to record a preliminary estimate of 5.7 percent in 2019 Q2 and 5.6 percent in fiscal year 2018/19, the highest in eleven years. Meanwhile, the unemployment rate continued to decline to record 7.5 percent in 2019 Q2, thereby narrowing by almost 6 percentage points from its peak in 2013 Q4.
Globally, the expansion of economic activity continued to weaken, financial conditions eased, and trade tensions continued to weigh on the outlook. International oil prices remain subject to volatility due to potential supply-side factors that include geopolitical risks.
As incoming data continued to confirm the moderation of underlying inflationary pressures, the MPC decided to cut key policy rates by 100 basis points. This remains consistent with achieving the inflation target of 9 percent (±3 percentage points) in 2020 Q4 and price stability over the medium term.
The path for future policy rates remains a function of inflation expectations. Accordingly, the pace and magnitude of future policy rates adjustment will continue to be subject to confirmation that inflation expectations are anchored at target levels that are consistent with disinflation and price stability over the medium term.
The MPC closely monitors all economic developments and will not hesitate to adjust its stance to preserve monetary stability.”

www.CentralBankNews.info