Central Bank of Egypt cuts interest rates by 100 basis points as inflation eases

Hana Afifi , Thursday 15 Feb 2018

The annual headline inflation rate fell in January 2018 to 17.1 percent and the core inflation rate dropped to 14.4 percent

Central Bank

The Central Bank of Egypt (CBE) cut key interest rates by 100 basis points on Thursday, the bank said in a press release.

The overnight deposit rate was lowered to 17.75 percent from 18.75 percent, and the overnight lending rate was cut to 18.75 percent from 19.75 percent.

The rate of the central bank’s main operation and the discount rate were both cut by 100 basis points to 18.25 percent.

The CBE’s Monetary Policy Committee decided on the cut based on data that confirmed the “moderation of underlying inflationary pressures,” according to the statement.

The bank says the cut is still consistent with tight real monetary conditions in order to achieve the targeted inflation of 13 percent (± 3 percent) in Q4 2018 and single digits after that.

“Inflationary pressures have been contained, a consequence of tighter real monetary conditions,” the bank said.

“This has been evident by relatively tame monthly inflation figures, despite being affected by upward adjustments of regulated prices,” the bank added.

The annual headline inflation rate fell in January 2018 to 17.1 percent from 21.9 percent the previous month, and the core inflation rate to 14.4 percent from 19.86 percent, both declining for the sixth consecutive month. 

The annual headline inflation rate had peaked in July 2017 at 33 percent and the core inflation rate at 35.3 percent in the same month on the back of the flotation of the Egyptian pound and cutting energy subsidies.

“Headline and core annual inflation rates thereby registered the lowest rates since October 2016 and September 2016, respectively,” the statement read.

“Favorable base effects have been accelerating the decline of annual inflation rates since November 2017,” the statement added.

The central bank had raised overnight rates by 700 basis points since it floated the EGP in November 2016 to curb high inflation rates.

Real GDP growth recorded 5.3 percent in December 2017, an upward trend for the fifth consecutive quarter, 5 percent in 2017, the highest since 2010.

“The pickup of economic growth was boosted by higher net external demand, due to more competitive exchange rates, followed by public domestic demand, which have more than offset lower private domestic demand,” the bank said. 

“Output growth by economic activity was relatively diversified, and 83 percent of which was supplied by the private sector,” the bank added.”

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