Monday 10, September 2018 by Bloomberg

Egypt central bank gets reprieve as monthly inflation lows

 

Curbing inflation, which had rocketed to over 34 per cent following the November 2016 decision to float the pound, was a key priority for the central bank.

Egyptian consumer prices rose at their slowest monthly rate since May, offering fresh evidence that the impact of fuel price hikes was abating and giving the central bank room to shift its focus from inflation to investments.

Monthly inflation in August eased to 1.8 per cent compared to 2.4 per cent the previous month, according to data reported by CAPMAS, the state-run statistics agency, its slowest pace since the government began enacting another round of subsidy cuts and rate hikes. The annual rate accelerated to 14.2 per cent compared to 13.5 per cent in July, still squarely within the central bank’s target range of 13 per cent.

Slowing of the monthly rate “signals that inflation is not a concern anymore,” according to Radwa El-Swaify, head of research at Pharos Holding in Cairo. “We’re comfortably on track to achieve the central bank’s target by the end of the year.”

Core inflation, which strips out volatile and regulated items, accelerated slightly to 8.83 per cent in August compared to 8.54 per cent the previous month. Month-on-month, however, the rate was 0.58 per cent, its lowest level since February.

The regulator has cut rates by 200 basis points this year as it moved to unwind historically high borrowing costs seen last year. It has held the rate unchanged for the past three meetings.

The bank has been attempting to avoid an upswing in inflation while not creating an incentive for investors to pull their money from the debt market amid a selloff roiling emerging markets.

The central bank’s Monetary Policy Committee is scheduled to meet 27 September 2018 to discuss rates, and the decision “will be fully driven by the need to keep foreign investors in the debt market,” El-Swaify said, expecting the regulator to hold rates steady.

Features & Analyses

Economics Adapting to a new era

  Abdullah Al-Fozan, Chairman of KPMG MESA and KPMG Saudi Arabia, provides an exclusive commentary on the Kingdom’s business… read more