Egypt’s central bank cuts interest rates by 50 basis points

Egypt’s central bank cut its main interest rates by 50 basis points on Thursday, moving to support an economy badly hit by the coronavirus pandemic as inflation remained muted.

Egypt’s economy contracted by 1.7 percent in the second quarter of 2020, the bank’s Monetary Policy Committee (MPC) said in a statement accompanying the decision to reduce the overnight lending rate to 9.25 percent from 9.75 percent and the overnight deposit rate to 8.25 percent from 8.75 percent.

Most analysts in a Reuters poll had forecast the bank would leave rates unchanged, although seven of 16 predicted the 50 basis point cut, noting inflation was near its lowest in years.

The MPC said it expected inflation to remain in the low single digits in the last quarter of 2020, below its target floor of 6%.

Inflation climbed to 4.5% in October, still near a 14-year low, from 3.7 percent in September 2020 and 3.4 percent in August.

“The reduction in key policy rates…provides appropriate support to economic activity, while remaining consistent with price stability over the medium term,” the MPC said.

Economic growth, pulled down by the coronavirus pandemic, fell to 3.6% in the financial year that ended in June from 5.6 percent in 2019/20.

“Growth was dragged downwards in 2020 Q2, mainly due to the partial lockdown measures that were implemented to contain COVID-19, registering negative 1.7 percent, down from 5.0 percent in 2020 Q1,” the MPC statement said.

Allen Sandeep, head of research at Naeem Brokerage, said the interest rate cut was good news for borrowers and the markets in general.

“While some more monetary easing was eventually expected, the timing comes as a slight surprise to us given monthly inflation having risen in October, implying that the central bank is slowly loosening its strings to support liquidity,” Sandeep said.

The MPC also cut rates by 50 basis points at its previous meeting in September.


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