AlwaysFree: Egypt Slashed Interest Rates on Subdued Inflation

On Thursday, Egypt’s central bank slashed its main overnight interest rates as the subdued inflation provided the room to spur the economy.

The lending rate was cut to 9.75% and the deposit rate to 8.75%, both were cut by 50 bp.

The Monetary Policy Committee (MPC) stated that the reduction provides appropriate support to economic activity while remaining consistent with achieving price stability over the medium-term.

Egypt’s inflation remained well under the central bank’s target range of 6-12%. In August, the annual urban consumer price inflation fell to 3.4%, the second-lowest level in almost 14 years, compared to 4.2% in the previous month. For the remainder of the year, inflation is estimated to stabilize at 5.5%.

Economist Noaman Khalid of Arqaam Capital commented that the cut shows the central bank is not worried about capital flight in the short term and is comfortable with inflation.

Foreign holdings of Egyptian treasury bills rebounded in July to EGP172.0 billion (USD10.9 billion) from EGP122.44 billion (USD7.78 billion) at the end of June.

In the first half of 2020, Egypt’s economy grew by 3.5%, way below the 5.6% growth expected pre-coronavirus pandemic.

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