The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) is expected to keep interest rates unchanged for the sixth time in a row in its next meeting on Thursday, 5 August, as the inflation rate is accelerating in the country.
On 23 July, the country’s Fuel Automatic Pricing Committee increased the prices of fuel for the second time in 2021 by EGP 0.25 per litre.
The prices of 80-octane gasoline increased to EGP 6.75, 92-octane gasoline to EGP 8, and 95-octane gasoline to EGP 9. Meanwhile, the price of the diesel fuel remains at EGP 6.75 and industrial-use mazut at EGP EGP 3,900 per tonne.
Esraa Ahmed, an economist at Pharos Holding for Financial Investments, said that the current situation doesn’t give much room for moving interest rates.
Several local and global factors will drive the CBE to leave interest rates on hold in its meeting on Thursday. The annual inflation rate increased for the third successive month to reach 4.9% in June and is expected to reach 5.9% on average in the first quarter (Q1) of fiscal year (FY) 2021/2022 due to the rising prices of cigarettes, fuel, and electricity.
Moreover, the rising prices of basic commodities globally, especially the food and fuel prices, will also drive the inflation rate higher, the analyst noted.
Other factors include risks related to COVID-19 vaccination rates and pressures on the local currency due to the drop in the balance of payments, she added.
The CBE will not cut interest rates in order to keep local debt instruments competitive until the full recovery of tourism and exports, she pointed out.
Head of Macro and Financials at HC, Monette Doss, also expects the CBE to keep interest rates unchanged.
The average inflation is forecast to reach 0.8% month-on-month (MoM) and 6.8% year-on-year (YoY) to remain within the range of the Central Bank of Egypt’s (CBE) inflation target, Doss noted.
For her part, Mona Bedeir, a senior economist at Prime Holding, said that the CBE will likely leave interest rates on hold until the end of 2021 as the inflation rate is expected to exceed 6% in October, before declining back to 4% in November and December.
