The Central Bank of Egypt (CBE) made the second consecutive cut to key rates by 1% (100 bps), driven by the declining inflation rates, which hit a six-year low in August, alongside the falling unemployment and soaring economic growth, Invest-Gate reports.
The new cuts included decreasing interest rates of overnight deposit to 13.25%, overnight lending to 14.25%, and the main operation to 13.75%, CBE said in an official statement on September 26. The bank noted that the decision “remains consistent with achieving the inflation target of 9% (±3 percentage points) in Q4 2020 and price stability over the medium-term.”
“Annual headline and core inflation continued to drop to record 7.5% and 4.9%, respectively, in August. The decline continued to be supported by the containment of inflationary pressures as well as favorable base effects, as monthly inflation logged 0.7% last month, compared to 1.8% in August 2018,” read the statement.
Besides, accelerating monetary easing on a global level, amid slowing economic activity, also factored into the CBE’s move. It highlighted, “The slow-down in global economic growth focused the attention on financial easing, that is easing the economic cycle that a number of world central banks have adopted recently while oil prices are still unstable.”
At its last policy meeting in August, the CBE slashed its overnight deposit and lending rates by 150 basis points to 14.25% and 15.25%, respectively, marking the first cut in six months, or since February.
The bank showed that annual headline inflation fell to recorded 8.7% in July, while core inflation went down to reach 5.9%, recording the lowest rates in four years. This comes despite “the recently implemented fiscal consolidation measures that reached cost recovery for most fuel products,” according to a previous statement.
Pushing domestic fuel prices by 16-30% higher was the last in a series of subsidy cuts tied to a three-year USD 12 bn loan facility from the International Monetary Fund (IMF). Other reforms tied to the deal included currency devaluation and the introduction of value-added tax.
