CAIRO – The Central Bank of Egypt (CBE) is expected to leave its main interest rates unchanged this week, balancing a steep decline in growth caused by the coronavirus crisis with an unexpected uptick in inflation, a Reuters poll showed.
All but two of the 19 analysts polled thought the bank would keep rates steady at its regular monetary policy committee meeting on Thursday. The other two forecast a 50 bps cut.
Egypt has been grappling with the collapse of its tourism industry and with a decline in gas exports, Suez Canal revenue and remittances from workers abroad brought on by the coronavirus crisis.
The government had been forecasting economic growth of about 6% in the fiscal year that will begin on July 1, but Planning Minister Hala al-Saeed said this month growth could slow to 2% if the crisis continues to December.
The government had also been targeting growth of 5.6% in the current 2019-20 fiscal year but is now looking at 4.2%, she added.
Despite the grim growth scenario, urban consumer inflation increased to 5.9% year on year in April from 5.1% in March, the official statistics agency CAPMAS said on Sunday, a rate higher than analysts had expected.
At its last meeting on April 2, the central bank’s Monetary Policy Committee (MPC) left interest rates on hold, two weeks after having slashed them by three percentage points at a surprise meeting as a “pre-emptive” move to support the economy in the face of the COVID-19 outbreak.
“Having cut rates sharply in March by 300bps, the CBE is likely to keep policy rates on hold given the absence of any major developments since,” said Mohamed Abu Basha, an economist at EFG Hermes.
The overnight lending rate is now 10.25% and the overnight deposit rate 9.25%, the lowest rates since early 2016, before Egypt embarked on a three-year, IMF-backed economic reform programme.
“The effectiviness of a further rate cut is limited by lockdown measures and protracted uncertainties,” Mona Bedir at Prime Holding said.