Egypt central bank bucks trends, keeps interest rates unchanged

Reuters/Ibraheem Abu Mustafa

The Central Bank of Egypt (CBE), bucking analyst expectations, left its overnight interest rates unchanged on Thursday, saying it believed inflation was under control over the medium term.

The bank also raised the reserve ratio to 18 percent from 14 percent, saying that this would help tighten liquidity.

The bank’s Monetary Policy Committee (MPC) kept the deposit rate at 11.25 percent and its lending rate at 12.25 percent, it said in a statement.

A poll of 15 analysts had forecast that the bank would raise rates by 100 basis points (bps).

The MPC said that although inflation was high, it was lower on a month-to-month basis than it had been in March and April and was being driven mainly by supply-side issues, particularly international commodity prices.

“Therefore, the MPC concurs that the current key CBE rates coupled with the increased required reserve ratio are consistent with achieving price stability over the medium term,” it said in the statement accompanying the rates decision.

Egypt’s annual urban consumer inflation quickened to 14.6 percent year-on-year in August from 13.6 percent in July, while core inflation rose to 16.7 percent from 15.6 percent.

The Federal Reserve a day earlier hiked US rates by 75 bps. The bank’s new governor, Hassan Abdalla, was appointed only hours before the last MPC meeting in August.

The central bank kept its rates on hold at its last two meetings, on June 23 and August 18, but raised them by 200 bps in May, saying it was seeking to contain inflation expectations after prices surged by their fastest in three years.