Egypt/Bloomberg

Economy

Inflation edges higher to stop Egypt’s rate cuts

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Egypt’s policy makers met their inflation target for last year and set a goal of nine per cent, plus or minus three percentage points, for the last quarter of 2020.

Monday 11, March 2019

(Bloomberg) --Egypt’s annual urban inflation accelerated for a second month, complicating the central bank’s path forward after its first interest-rate cut in almost a year.

CAPMAS, Egypt’s statistics agency, said that consumer prices in February rose 14.4 per cent from a year earlier after a gain of 12.7 per cent in January, a 1.7 per cent monthly increase since October.

Cairo-based Naeem Holding, stated that the figures should put the brakes on the possibility of further interest-rate cuts by Egypt’s central bank for now.

The price build-up could test the central bank’s resolve following its surprise rate cut of 100 basis points last month that it said was warranted by the moderation of underlying inflationary pressures.

The central bank’s next rate meeting is scheduled for 28 March.

“The sudden increase in prices was driven by a sharp rise in food prices,” added Mohamed Abu Basha, the Head of Macro Analysis at EFG Hermes in Cairo.

“We think the reading might dim the chances for another rate cut when the Egyptian central bank meets later this month, Abu Basha said.

Besides the run-up in food costs, plans to lift fuel subsidies this year are certain to push up inflation. Price growth is also under pressure from a government decision to set a new customs exchange rate in November, based on the central bank’s official conversion rate. The move was aimed at curbing an outflow of dollars as authorities pushed ahead with a sweeping programme to revive the economy.

Inflation is picking up despite a rally by the Egyptian pound, which is now trading at its strongest against the dollar in two years. Purchases of local debt by foreigners are among the key drivers behind the appreciation, even as the government changed the way banks will calculate tax on profits from local Treasury bills and bonds.

 

TAGS : consumer Inflation, energy subsidies , CBE, CAPMAS

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