By: Heba El-Kordy
Cairo – Mubasher: After Egypt’s inflation rate hit targets that would spur the Central Bank of Egypt (CBE) to cut interest rates, inflationary pressures stemming from of cutting subsidies on fuel and raising electricity prices are likely to push the CBE to keep interest rates unchanged and delay the monetary easing policy.
The Egyptian government had decided to raise electricity tariffs by up to 26% and increase fuel prices to range between 17.4% and 66.6% in June.
The government's recent decisions are expected to push inflation rate to up to 5%, which would make the CBE keep interest rates unchanged at the Monetary Policy Committee’s (MPC) meeting next Thursday, economists told Mubasher on Wednesday.
The Central Agency for Public Mobilization and Statistics (CAPMAS) had announced that the annual inflation rate fell to 11.5% year-on-year in May from 30.9%.
The CBE had to raise interest rates following the libralistation of exchange rate three times in November 2016 by a combined 7%, or at 3% in November, 2% in May 2017, and 2% in July 2017.
The central bank had to slash interest rates by around 1% last February and March.
Inflation and IMF
The MPC is expected to keep interest rates unchanged due to the anticipated rise in the inflation rate in the next two months following the hike in fuel and electricity prices, an economist at Pharos Research Mahmoud El Masry said.
El Masry forecast the Arab nation's inflation rate to increase by nearly 3% in each of July and August.
The Egyptian petroleum ministry had announced that the Cabinet approved the increase in petroleum product prices as of Saturday, 16 June, the second day of Eid al-Fitr, three-day Muslim festival marks the end of the fasting month of Ramadan.
The International Monetary Fund (IMF) has postponed voting on the fourth tranche of Egypt’s loan programme, which may pressure on the CBE to maintain its key interest rates, he indicated.
The CBE is likely to keep interest rates unchanged until October or November in to resume easing the benchmark interest rate after inflation rates settle, he projected.
It is worth noting that the finance ministry aims to slash inflation rate at 10% in fiscal year 2018/2019.
Maintaining interest rates
For her part, Esraa Ahmed, an economist at MubasherTrade, projected inflation rate to rise by 5% following the hike in fuel prices, particularly the monthly inflation, which could push the CBE to keep interest rate unchanged.
The impact of the current fuel prices on Egypt’s annual inflation will be clear next July, compared to this month.
The London-based research consultancy Capital Economics previously expected that Egypt’s inflation rate to fall to 8% in 2019.
Translated by: Mai Ezz El-Din
