Egypt's central bank seen keeping key interest rates on hold: Poll

Reuters, Wednesday 16 Jul 2014

Egypt's central bank is expected to leave interest rates unchanged on Thursday as it balances its efforts to keep inflation in check with the need to stimulate the economy after more than three years of stagnation, a Reuters poll showed.

Annual inflation reached its highest in nearly four years in November, at 13 percent, but has been edging down since then. It remained steady at 8.2 percent in June but is expected to rise after the government ended energy subsidies earlier this month, causing fuel prices to surge.

All five economists polled by Reuters said they expect the central bank to keep rates on hold in their meeting on July 17.

"Recent energy price hikes are likely to push inflation up into double digits again over the coming months," said Jason Tuvey, an economist at Capital Economics. "As such, there is little scope for the central bank to cut interest rates to support the economy which, although recovering from last year's political upheaval, remains weak."

At its last meeting, on May 29, the central bank kept its deposit and lending rates at 8.25 and 9.25 percent, respectively.

Egypt's economy and currency have suffered since leader Hosni Mubarak was ousted in a popular uprising in 2011, deterring the tourists and foreign investors who are a major source of hard currency.

Economic growth was a meagre 1.2 percent in the first half of last fiscal year, despite billions of dollars in aid from Gulf Arab allies and two stimulus packages worth about 30 billion Egyptian pounds ($4.20 billion) each.

Economists expect that despite the slow growth, the central bank will hold off on cutting rates in the coming months.

"While growth appears too weak to support a sustained run-up in inflation, it now seems likely that the central bank will be cautious and wait to gauge the lasting impact of subsidy cuts on price stability before adjusting its monetary policy stance," HSBC said in a research note.

"As a consequence, we expect rates to remain on hold, probably staying flat into the fourth quarter of the year," it said.

Short link: