Inflation reduction to support lowering interest rates: Analysts



Sun, 10 Dec 2017 - 03:54 GMT


Sun, 10 Dec 2017 - 03:54 GMT

Central Bank of Egypt's headquarters is seen in downtown Cairo, Egypt March 8, 2016. REUTERS/Mohamed Abd El Ghany

Central Bank of Egypt's headquarters is seen in downtown Cairo, Egypt March 8, 2016. REUTERS/Mohamed Abd El Ghany

CAIRO - 10 December 2017: Benefiting from the base effect as one year has passed since the flotation of the Egyptian pound, economic analysts expect inflation rates to continue declining over the coming months.

The base effect should be clearer in the upcoming months as the inflation rate for December is anticipated to be around 20 percent, economist at Mubasher International Esraa Ahmed said in a Sunday research note.

As expected, Egypt’s annual urban consumer price inflation fell to 26.7 percent in November from 30.8 percent in October, the official statistics agency CAPMAS said on Sunday.

Mubasher's expectation is in line with statements from Finance Minister Amr El-Garhy, who said on Sunday that Egypt’s inflation rate is expected to drop down to 20 percent in January and to 13-14 percent by August.

The inflation rate could have been lower, but the hike in tobacco’s prices in late November, which saw a 30-percent increase in cigarettes prices, was large enough to push the item’s contribution in the Consumer Price Index from 1.18 percent in October to 1.4 percent in November.

"More importantly, we believe lower inflation rates will likely encourage the Central Bank of Egypt (CBE) to make the long-awaited decision to lower interest rates, most probably by 1 percent in their next meeting scheduled for 28 December 2017," Ahmed said.

Economic analysts are expecting the same move from the CBE. London-based research firm Capital Economics said in a report in November that the first interest rate cut is expected in December.

Capital Economics' Middle East economist Jason Tuvey believes the first rate cut will come at 100 basis points to hit 17.75 percent.

Pharos Holding's economic analyst Ramy Oraby shared similar views. He says that the CBE is more likely now to consider cutting interest rates in the upcoming meetings.

“The CBE usually doesn’t look for a certain level of inflation to reduce interest rates, but it looks at the overall economic trend,” Oraby said.



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