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Tuesday, 01 December 2020

'Declining inflation will push the CBE to introduce more interest rate cuts in 4Q of 2019': EFG Hermes

The head of macroeconomic analysis at EFG Hermes foresees further cuts in interest rates ahead, on the back of stabilising oil prices, growth and decreasing inflation

Doaa A.Moneim , Sunday 29 Sep 2019
Central Bank
File Photo: Central Bank of Egypt's headquarters is seen in downtown Cairo, Egypt. (Reuters)
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In an exclusive interview, director and head of macroeconomic analysis at EFG Hermes, Mohamed Abu Basha, told Ahram Online that there is a significant room for more cuts in the Central Bank of Egypt's (CBE) interest rates in the fourth quarter of 2019.

"Interest rates are ready for more cuts in the range between 50 percent (50bps) and 100 percent (200bps) driven by decreasing inflation, which has declined gradually by between eight percent and nine percent compared to its rate in 2018 and is anticipated to touch its standard level by the end of 2019," Abu Basha anticipated.

He added also that global oil prices will stabilise after a phase of uncertainty in the wake of the recent attack on Aramco oil installations in Saudi Arabia, and that this will be a pivotal factor allowing Egypt's inflation rate to decline further, which will push the CBE to introduce more interest rate cuts in 2019.

In its meeting last Thursday, the CBE's Monetary Policy Committee (MPC) decided to cut the CBE overnight deposit rate, overnight lending rate, and the rate of the main operation by 100 basis points (one percent) to 13.25 percent, 14.25 percent, and 13.75 percent respectively. The discount rate was also cut by 100 basis points to 13.75 percent.

The CBE said that the new cuts were driven by real GDP growth, declining unemployment, and decreasing inflation rate.

Since February, the CBE has introduced 3.5 percent cuts to interest rates (350 bps) and fixed rates three times from March to July at 15.75 percent.

Two meetings are be held in November and December, in sequence, to review interest rates. The MPC's next meeting is scheduled for 14 November.

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