Egypt continues monetary easing cycle, cuts interest rate for 3rd time in row
The overnight deposit rate, the overnight lending rate, and the rate of the main operation are cut to be at 12.25 percent, 13.25 percent, and 12.75 percent, respectively.
Moreover, credit and discount rates were declined to 12.75 percent from 13.75 percent.
Analysts and experts attributed their expectations to recording the lowest rate of urban inflation since July 2006 gives the Monetary Policy Committee of the Central Bank of Egypt the chance to continue the easing cycle, registering the third consecutive cut.
MPC cut the overnight deposit rate, the overnight lending rate, and the rate of the main operation by 100 basis points and 150 basis points in September and August, respectively.
The overnight deposit rate, the overnight lending rate, and the rate of the main operation are cut to be at 13.25 percent, 14.25 percent, and 13.75 percent, higher than economists’ expectations.
The annual urban inflation declined from 4.8 percent in September to 3.1 percent in October, with monthly urban inflation recording 1 percent, up from a flat reading in the previous month.
The Central Agency for Public Mobilization and Statistics (CAPMAS) also announced that Egypt’s annual consumer price inflation declined to 3.1 percent in October 2019, compared to 4.8 percent in September 2019, with a monthly inflation up-tick from 0.3 percent to 1 percent.
The CBE said that Egypt’s annual core inflation rate rose to 2.7 percent in October 2019, from 2.6 percent in September 2019.
"The CBE can comfortably cut rates in the coming meeting," Senior Economist at Shuaa Securities Esraa Ahmed said. She stated the CBE still has a well-accommodating room for more easing before the end of 2019 despite an adverse base effect expected in December.
"We continue to expect the CBE to cut rates by 100bps in November’s meeting, making the best out of the conducive domestic and global factors," Ahmed noted.
Economist and Head of the Capital Center for Economic Studies and Research Khalid al-Shafei stressed earlier that the decline in inflation to these levels may push towards an interest rate cut of about 1 percent at the next meeting of the Central Bank on November 14, 2019.
Shafei explained that this would have a positive impact on the debt of the government borrowed weekly to fill the budget deficit, pointing out that the interest rate cut also affects the decisions of investors to enter the Egyptian market, as well as the decisions of local investors to conduct investment expansions.
He said that after the liberalization of the exchange rate, interest rates in Egypt were raised to unprecedented figures to rein inflation, and the decline in monthly and annual inflation.
This decline in rates strongly supports the trend of rate cuts, and a wave of monetary easing from the central bank, which positively reflects on investment and the economy as a whole, according to Shafei.
"The decline of inflation has important impacts on the economy,” he noted, clarifying that any decline in inflation directly reflects on the decisions of expansionary companies, as well as on decisions of foreign investors, who monitor several indicators when making an investment decision, especially growth, inflation and interest rates, as well as the consumption and market size.
CAIRO - 14 November 2019: Hitting the lowest rate of urban inflation since July 2006 gives the Monetary Policy Committee of the Central Bank of Egypt the chance to continue the easing cycle, registering the third consecutive cut, according to analysts and experts.