Egypt seen keeping interest rates steady as inflation slows

Cairo: Egypt's central bank is expected to leave interest rates on hold at its policy meeting on Thursday as emerging market turbulence weighs on the economy even as inflation shows signs of slowing.
Twelve economists polled by Reuters said the bank's monetary policy committee was likely to maintain its deposit and lending rates at 16.75 and 17.75 per cent respectively at its meeting.
Prices leapt after the government in June reduced subsidies on electricity and a wide range of fuel products, including petrol, diesel, fuel oil and natural gas, part of a programme drawn up with the IMF two years ago to reduce the budget deficit. In May the government also raised the price of metro tickets.
Since then, price increases have slowed, with month-on-month headline inflation decelerating to 1.782 per cent in August from 2.23 per cent in July and 3.48 in June.
Economists said that despite the improving inflation figures, investors have grown warier of Egypt and other emerging markets since currency crises hit Turkey and Argentina in August.
"Inflation is decelerating, but emerging market exits is creating pressure to keep rates high," said Radwa El-Swaify, head of research at Pharos Securities Brokerage.
Year-on-year inflation declined to 14.24 per cent in August from 31.92 per cent in August 2017, when the bite of the fiscal reforms was at its most painful.
Egypt's fundamental economic dynamics were strong enough to keep rates on hold despite international pressure from higher interest rates and capital outflows, said Hany Farahat of CI Capital.
"A hike at this juncture would send an unneeded message of weakness, and will not be enough to revert outflows, but will punish domestic activity and delay prospects of easing," he said.
The central bank's monetary policy committee raised rates by 700 points over the course of eight months after its November 2016 agreement with the IMF to dampen inflation. It then cut them in February and again in March this year.