Egypt cut interest rates for the third time this year, seizing on slower inflation and a stable currency as stocks rebounded following a rare bout of anti-government protests that rattled the market.
The Monetary Policy Committee lowered the deposit rate 100 basis points to 13.25 per cent and brought the lending rate down to 14.25 per cent, according to a statement on Thursday. While all 15 analysts surveyed by Bloomberg predicted a cut, they were split about how much easing the central bank could afford.
After a pivot to monetary easing in August thanks to a steep slowdown in inflation, the MPC is looking past last weekend’s unrest and fear of more to come — coupled with greater political risk across the Middle East. Despite some investor backlash that followed, monetary stimulus couldn’t be more timely as business activity has contracted in all but two of the past 12 months, according to the Markit Egypt Purchasing Managers’ Index.
The Arab world’s most populous nation has been on a mission to bring inflation under control after it devalued the currency by half in 2016 and slashed subsidies on items like fuel to curb the budget deficit and seal a $12 billion International Monetary Fund loan. Inflation rocketed to over 30 per cent before a steep slowdown.
With annual urban inflation easing to 7.5 per cent, its lowest level since 2013, Egypt still offers fixed-income investors one of the most profitable carry trades in emerging markets. Egypt’s pound is the world’s second-best performer against the dollar this year with a gain of almost 10 per cent. In August, policy makers delivered a cut of 150 basis points, the first in six months and their biggest since 2017.
