Egypt’s Inflation Surprise Dims Rate-Cut Hopes With Third Uptick

(Bloomberg) -- Egypt’s inflation inched higher for a third straight month in urban parts of the country, defying expectations of a deceleration that might have opened the door for the central bank to cut interest rates again later this month.

Annual inflation in January came in at 7.2%, compared with 7.1% the previous month, the state-run CAPMAS statistics agency, said Monday. On a monthly basis, the rate accelerated sharply to 0.7% after a drop of 0.2% in December.

“Going by recent precedents,” a rate cut “looks unlikely given the uptick in monthly inflation,” said Allen Sandeep, director of research at Naeem Holding.

Egypt’s Inflation Surprise Dims Rate-Cut Hopes With Third Uptick

The bar may now be higher for the central bank to restart monetary easing after it unexpectedly refrained from a rate cut last month. Many economists had predicted inflation below 7% in January as last year’s unfavorable statistical effects fade.

Price growth accelerated instead, including a monthly increase of 1.7% in food prices even after the government injected new supplies into the market before the end of the year.

Chance Remains

Still, a rate decrease may still be in play, with inflation well below the central bank’s target of 9%, plus or minus 3 percentage points, for the last quarter of 2020.

After four rate cuts last year, the real yield remains attractive to fixed-income investors, who have pumped billions of dollars into the local debt market since the 2016 devaluation of Egypt’s currency served as the cornerstone of a sweeping economic program.

Even with the slight uptick in the annual rate, the central bank has room for a 50 basis-point cut on Feb. 16, “given a high margin of real rates,” said Mohamed Abu Basha, head of macroeconomic research at Cairo-based investment bank EFG Hermes.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.