CBE cancels auction on Variable Rate Deposits for this week

CAIRO – 15 February 2018: The Central Bank of Egypt (CBE) canceled on Thursday its EGP Variable Rate Deposit Auction for this week, hours before the Monetary Policy Committee’s (MPC) meeting to decide on interest rates.

The CBE has started auctions on the Variable Rate Deposits following the flotation of the Egyptian pound in November 2016, a move aimed at with withdrawing liquidity from the market to curb inflation.

The CBE has offered a total of 73 auctions since the float. The bank started off with offering two auctions a week, but it then reduced them to only one. The last such auction was held on February 7, 2018.

The CBE is expected to start easing monetary policy in the coming period after inflation rates have slowed down in recent months.

CBE Governor Tarek Amer said earlier this month that the bank plans to start easing monetary policy “soon,” once it is assured that inflation has been controlled.

Inflation reached 17 percent in January 2018, the lowest rate since floatation, allowing the central bank to consider cutting interest rates.

Inflation has skyrocketed in Egypt after the country floated its local currency in November 2016, reaching a record high of 33 percent in July 2017 as a result of the pound losing 50 percent of its value and cutting energy subsides.

In a bid to curb inflation, the CBE increased interest rates by a total of seven percent since the float.

In its first review published in late September, the International Monetary Fund (IMF) flagged high inflation and fiscal pressures from energy subsidies as main challenges facing the Egyptian government.

However, inflation started to cool down gradually since its peak in July, with Economic analysts expecting inflation to continue dropping in the coming months.

Decreasing inflation over the previous months has pushed the CBE to keep its interest rates unchanged for three consecutive times, setting the overnight deposit rate and the overnight lending rate at 18.75 percent and 19.75 percent, respectively.

Research group Capital Economics expects a 100 BP cut of the overnight deposit rate to 17.75 percent in today’s meeting, adding that there is a risk that the MPC will cut rates by more than this percentage.