Egypt Surprises With 1st Rate Cut Since March as Focus Moves
Egypt Surprises With 1st Rate Cut Since March as Focus Moves
(Bloomberg) -- Egypt’s central bank unexpectedly lowered interest rates for the first time since an emergency cut in March as the focus moves from luring more debt investment to supporting economic growth.
The Monetary Policy Committee reduced the deposit rate to 8.75% from 9.25%, according to a statement Thursday. All but two of 11 economists surveyed by Bloomberg predicted no change. The lending rate was decreased by the same amount to 9.75%.
The cut “provides appropriate support to economic activity” and is “consistent with achieving price stability over the medium term,” the MPC said.
The stimulus is timely for the economy dragged down by disruptions caused by the coronavirus pandemic. The International Monetary Fund expects growth of 2% in 2020-2021, the slowest in years.
The rate cut is “good news for businesses in terms of liquidity, which has been quite tight since the pandemic,” said Allen Sandeep, director of research at Cairo-based Naeem Holding.
Even after the latest decrease, Egypt’s rates remain near the highest among more than 50 major economies tracked by Bloomberg when adjusted for prices. Authorities lowered borrowing costs a combined 450 basis points last year and delivered a record cut of 300 basis points in March.
Much of the focus in recent months has been on keeping capital inflows high while price increases decelerated sharply. Annual inflation in urban parts of Egypt eased last month to the slowest in nearly a year.
Following Egypt’s biggest-ever outflows between March and May as part of a global sell-off, outside investors began to return after Egypt secured financing from the IMF. Foreign holdings of local debt jumped to $16.9 billion by end of August from $14.1 billion a month earlier.
“Room for further easing is there, but unlikely in the short term considering an uncertain external environment,” Mohamed Abu Basha, head of macroeconomic research at Cairo-based EFG Hermes, said after the decision.
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