Egyptian central bank set to keep interest rates unchanged (poll)

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CAIRO- The Central Bank of Egypt (CBE) is set to suspend overnight interest rates at a meeting on Thursday, Reuters poll says, as it struggles to attract portfolio investment while by controlling inflation.

All but one of the 18 analysts polled believed the central bank would keep rates unchanged at its regular monetary policy committee meeting.

The lending rate is at 9.25% and the lending rate at 8.25% since November, its lowest since July 2014. Real interest rates nevertheless remain among the highest in the world.

“Given the persistent underlying fragility of the external accounts, in particular the country’s dependence on debt inflows to finance its trade deficit, we believe that maintaining high real rates will likely remain the preferred strategy.” Goldman Sachs said in a note.

It was “to guard against an outflow of foreign portfolio investment (mainly short-term),” the note said.

Egypt’s current account deficit widened to $ 18.4 billion in the fiscal year ended June 2021, from $ 11.2 billion a year earlier after falling tourism receipts, while that the trade deficit fell from $ 36.47 billion to $ 42.06 billion.

Annual urban consumption inflation climbed to 6.6% in September, its highest since January 2020, from 5.7% in August. Last month’s figure nevertheless remains well within the target range of 5% to 9% set by the central bank.

“The high inflation figure for September is mainly due to vegetable prices, which is why we do not expect the CBE to react to this figure,” said Mohamed Abu Basha of EFG Hermes.

The Egyptian economy appears to be recovering from the worst of the coronavirus pandemic, with gross domestic product growth of 7.7% in the quarter to end of June, compared to a contraction of 1.7% in the same quarter of the year last, according to government data.

A Reuters poll last week predicted growth of 5.1% in the current fiscal year, accelerating to 5.5% in each of the following two years as tourism continues to rebound and effects of the pandemic are diminishing.

An analyst, Wael Ziada of Zilla Capital, expected the central bank to raise rates by 50 basis points in response to bottlenecks in the global supply chain.

(Reporting by Patrick Werr; Editing by Hugh Lawson) (([email protected];))

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