December 24, 2019 / 7:06 AM / a month ago

Egypt's central bank seen holding rates after inflation uptick - Reuters poll

CAIRO (Reuters) - Egypt’s central bank will likely keep its key interest rates steady on Thursday, a Reuters poll showed, as inflation ticked up in November after hitting a near-14-year low.

FILE PHOTO: Central Bank of Egypt's headquarters aee seen in downtown Cairo, Egypt, September 7, 2017. REUTERS/Mohamed Abd El Ghany

Nine out of 14 economists surveyed by Reuters expected the Central Bank of Egypt (CBE) to hold rates. Four saw a 50 basis point (bps) cut and one predicted a 100 bps cut.

“Annual headline inflation is expected to accelerate further in December to end the year at circa 7%, still well below the CBE’s target of 9% (±3%). Thus, the CBE will likely opt to hold its policy rate constant in the upcoming MPC meeting,” said Mona Bedir, senior economist at Egyptian investment bank Prime Holding.

Egypt’s annual urban consumer price inflation rose to 3.6% in November from 3.1% in October, its lowest since December 2005. The November reading of 3.6% was still Egypt’s lowest since January 2006, according to Refinitiv data.

Analysts expect it to rise further in December, as favourable base-year effects wear off.

The CBE cut rates by a combined 350 basis points at its last three consecutive meetings and 100 bps in February. The overnight rates are at 12.25% for deposit and 13.25% for lending.

“The exceptionally low inflation rate and the fact that the CBE has just allowed banks to lend more to retail consumers indicates that the contractionary monetary policy might have overachieved its targets during the period of its inaction and hence the easing cycle is likely to continue, and hence we forecast another 50 bps cut,” said Wael Ziada, head of investment company Zilla Capital.

Still, most analysts expected the central bank to pause as they foresaw inflation inching up further in December and the bank to test how its cuts throughout the year will translate in the market.

“We foresee inflation averaging 4.7% in 4Q19, down from circa 7% in 3Q19,” said Alia Mamdouh, director of macro and strategy at Beltone Financial.

She foresaw steady rates “as the CBE tests liquidity following the aggressive cuts introduced throughout 2019 and absorbs the impact of fixed-income portfolio outflows at the usual end-of-year rebalancing of portfolios”.

Several analysts expected the bank to resume its easing cycle in the first quarter of 2020.

Reporting by Yousef Saba, editing by Ed Osmond

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