Egypt’s Still Got Room For a Big Rate Cut

(Bloomberg) --

The door is open for Egypt’s central bank to cut rates in a big way today even after anti-government protests rattled markets.

The consensus estimate for a cut has been scaled back to 100bps, down from 150bps before last week’s protests. The pullback is understandable given the two-day jump in EGP NDFs and fall in stocks at the start of the week. But the moves have moderated and forwards remain near the lowest levels in more than two years.

Inflation at the lowest since 2013 and the country’s high yields leave room for a bigger cut, say 150bps, without triggering outflows and hurting the currency. Adjusted for inflation, the central bank’s deposit rate is 6.75%, among the highest worldwide, while Egypt’s three-month notes offer a real yield of 8.7%.

The global hunt for yields is far from over. The protests, as long as they don’t morph into something much bigger, won’t stop Egypt being able to exploit that.

To contact the reporter on this story: Paul Wallace in Dubai at pwallace25@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Stephen Kirkland

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