Egypt Holds Interest Rates as Covid Doubts Cloud Global Economy
(Bloomberg) -- Egypt maintained one of the world’s highest inflation-adjusted interest rates in its final meeting for 2021 as authorities weigh the possible impact of the omicron variant on the economy.
The central bank held the benchmark deposit rate at 8.25% and the lending rate at 9.25%, the Monetary Policy Committee said Thursday in a statement. All 10 economists surveyed by Bloomberg predicted what’s Egypt’s ninth consecutive hold, rounding out a calendar year of no movement after combined cuts of 400 basis points in 2020.
A slowdown in inflation in November to 5.6% gave the central bank further scope to hold rates. Authorities are also monitoring the potential fallout from the latest pandemic-related restrictions being enforced by some countries, while weighing upcoming policy moves by the U.S. and other advanced economies.
The Federal Reserve has sped up the drawdown of its asset-purchase program and outlined a planned series of interest-rate increases in the coming years, starting with three in 2022. It could lead to policy tightening in other countries that might undercut the allure of emerging market debt for overseas investors.
Egypt, which has the highest differential between its key policy and inflation rates among more than 50 economies tracked by Bloomberg, has been a favorite for foreigners seeking yields.
With uncertainties mounting over global markets in 2022, there’s little consensus among Egypt-focused analysts over when rates will next move, and in which direction.
A 100-basis-point raise could be a “last resort” in 2022 if pressure from the higher Federal Reserve funds’ rate impacts foreign portfolio inflows into emerging markets, according to Radwa El-Swaify, head of research at Cairo-based Al Ahly Pharos.
But Farouk Soussa, an economist at Goldman Sachs Group Inc., sees a cut as the more likely option, albeit not until the second quarter.
Goldman sees “inflationary impulses from external factors receding in the medium term, which would most likely provide a dovish backdrop for the central bank, allowing it to resume easing as soon as external conditions allow,” he said.
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