2024-11-21 11:55:21 :
(Bloomberg) — Egypt is preparing to keep interest rates at record highs, pending the full inflationary impact of rising fuel prices and the completion of a key International Monetary Fund review.
Caution is likely on Thursday as the broader implications of Egypt’s third fuel adjustment of 2024 are due to be announced in December and the International Monetary Fund says further discussions are needed.
All eight economists polled by Bloomberg expect the central bank to keep its benchmark deposit rate at 27.25% for the fifth consecutive meeting.
The North African country increased prices on a range of fuel products by an average of 9.2% in October as part of an International Monetary Fund-backed initiative to cut its budget deficit by replacing state subsidies with targeted social spending.
Mohamed Abu Basha, head of research at Cairo-based investment bank EFG Hermes, said the central bank has “little leeway but to keep interest rates on hold” until the impact of higher fuel prices is more apparent.
An International Monetary Fund mission traveled to Cairo this month to conduct an updated review of Egypt’s expanded $8 billion program. On Wednesday, the bank said discussions had made “substantial progress” but said more talks would take place in the coming days. The latest review should free up $1.3 billion in loans.
Jean-Michel Saliba of Bank of America Corp. said authorities are likely to be cautious about interest rates until Egypt passes the review.
“The market still doesn’t know whether the fourth review will be concluded on time or delayed,” he said.
The Middle East’s most populous country has raised interest rates by 8 percentage points this year. That has helped slow inflation – which fell to around 26% annually from 36% in February – even as the Egyptian pound plummeted nearly 40% in March as authorities scrambled to secure foreign funds. But a new wave of subsidy cuts has at least temporarily changed that trajectory.
Egypt’s central bank said in September that its current interest rates would remain at appropriate levels “until inflation falls significantly and sustainably.”
Economists including Saliba and Abu Basha believe regulators will wait until at least the end of the first quarter of 2025 to begin an easing cycle.
Abu Basha said February’s inflation data was particularly important, showing “the normalization of the large base effect from the inflation shock this year”.
More stories like this can be found at Bloomberg.com
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