Egyptian streets/Bloomberg

Economy

Egypt's economic wins may seal rate cut despite global sell-off

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The Monetary Policy Committee is expected to reduce the benchmark overnight deposit rate by at least 100 basis points to 14.8 per cent.

Thursday 22, August 2019

Egypt is poised to cut interest rates for the first time in six months as easing inflation and currency stability look set to override concerns of an emerging-market selloff, reported Bloomberg.

The decision would help the central bank accelerate economic growth. With inflation easing to a four-year low, Egypt would still offer fixed-income investors one of the most profitable carry trades in emerging markets even as a raging trade war between the US and China hits assets elsewhere.

Egypt’s recovery has turned it into the Middle East’s fastest-growing economy following three years of grinding reforms enacted to secure a $12 billion loan from the International Monetary Fund.

With the currency devalued by half and subsidies on items like fuel slashed to curb the budget deficit, inflation rocketed to over 30 per cent before slowing.

Mohamed Abu Basha, the Head of Macroeconomic Analysis at EFG-Hermes, said that the Egyptian pound’s current stability has combined with high interest rates to make the country a darling among bond investors hunting for yield. Egypt’s borrowing costs adjusted for inflation—currently among the highest in emerging markets—give authorities leeway to ease monetary policy.

Further cuts could also help private businesses that have struggled with high borrowing costs in recent years. At the same time, almost one-third of Egypt’s 100 million population –the Arab world’s largest—now lives in poverty, about double the figure at the start of the century.

TAGS : inflation, Monetary Policy Committee, International Monetary Fund

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