Egypt Cuts Rates for 2nd Time in Boost for Virus-Hit Economy

(Bloomberg) -- Egypt cut interest rates for a second consecutive meeting, seeking to give a boost to local businesses battling the impact of the coronavirus.

The central bank reduced the benchmark deposit rate 50 basis points to 8.25%, the Monetary Policy Committee said Thursday in a statement. Seven of 12 economists surveyed by Bloomberg had predicted the cut. The lending rate was reduced by the same amount to 9.25%.

Although consumption picked up in the second quarter of the year, it “was not enough to offset the combined contraction in investments and to a lesser extent in net exports,” the central bank said. It described the reduction as giving “appropriate support to economic activity.”

The decision, which follows combined cuts of 350 basis points earlier in the year, could help reduce the financing costs of Egypt’s budget deficit and fuel a fledgling revival of the private sector. Business activity in the North African nation posted a six-year high in October, although concerns over further job losses and potential new Covid-19-related restrictions continue to dog the economy.

“The cut confirms the central bank is focusing on private investment, reviving consumption and alleviating pressure on the fiscal budget,” said Radwa El-Swaify, head of research at Cairo-based Pharos Holding.

Even after the cut, Egypt retains one of the world’s highest real-interest rates -- a ranking that’s helped draw investors to the country. Foreign holdings in local debt jumped to $21.7 billion at the end of October, stoked by the world’s best carry-trade returns after Argentina and agreements with the International Monetary Fund.

“The magnitude and pace of monetary easing have been very gradual to preserve foreign interest in local debt instruments in light of volatile global growth dynamics,” El-Swaify said.

Inflation accelerated in October at its fastest pace in four months, but remains below the central bank’s target of 9% plus or minus three percentage points in the fourth quarter.

The central bank said that its focus is on medium-term inflation and there’s “increasing likelihood” that the current quarter outlook would come in under the target floor of 6%.

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