CAIRO – 17 November 2020: Standard Chartered Bank expected the Central Bank of Egypt (CBE) to keep interest rates unchanged in coming meetings, Director, Economist MENAP & Turkey, Financial Markets at the Bank Carla Slim, told Egypt Today (ET).
Slim clarified that this anticipation comes as inflation is expected to pick-up gradually back towards the CBE’s 9 percent (+/-3 percent) target.
Regarding CBE’s latest decision to cut rates by 50 basis, the Economist noted that the cut came in line with Standard Chartered consensus expectations.
She pointed out that CBE cut both its deposit rate and lending rate by 50bps for a second consecutive MPC meeting, bringing cumulative easing to 400bps this year (including a 300bps emergency cut earlier in March).
“In our view, soft inflation, a recovery in portfolio inflows, EGP strength and prospects for a weaker USD were conducive to additional easing,” Slim noted.
According to Slim, looser financial conditions are expected to help support the recovery, the press release also makes a small hint at the absence of export competitiveness given EGP appreciation:
“Pickup in consumption in the second quarter (Q2) of 2020 was not enough to offset the combined contraction in investments, and to a lesser extent in net exports,” she stated. Adding that the leading indicators for the third quarter of 2020 continue to show gradual signs of recovery.
The Monetary Policy Committee of the CBE decided on Nov. 12, to cut the overnight deposit rate, overnight lending rate, and the rate of the main operation by 50 basis points to 8.25 percent, 9.25 percent, and 8.75 percent, respectively. The discount rate was also cut by 50 basis points to 8.75 percent.
MPC referred to the annual headline urban inflation which recorded 4.5 percent in October 2020 and 3.7 percent in September 2020 up from 3.4 percent in August 2020.
It noted that the increase in annual headline inflation continued to be mainly driven by higher annual contribution of food items as well as regulated items. This comes as negative annual food inflation eased for the second consecutive month, according to the statement.
“In the meantime, annual core inflation increased to 3.9 percent in October 2020 up from 3.3 percentin September 2020. Nevertheless, annual inflation rates continued to reflect muted inflationary pressures,” it added.
Egypt's 2020/2021 draft budget aims to reduce public debt of GDP to 82.7 percent by end of June 2021, up from earlier target of 82.5 percent by the end of June 2020 and to 77.5 percent by the end of June 2022.