Egypt’s central bank will leave its key interest rates unchanged in July, a Reuters poll showed on Monday, after a hike of 200-basis points in May failed to put a lid on inflation that has soared since the currency was floated in November.
Economists expect inflation to rise in coming months due to a recent hike in fuel prices, but nine out of 10 participants polled by Reuters said the Central Bank of Egypt (CBE) was unlikely to raise rates at an upcoming meeting on Thursday.
Inflation eased slightly but remained high at around 30 percent in May after the CBE hiked its overnight deposit rate to 16.75 percent from 14.75 percent and its overnight lending rate to 17.75 from 15.75 percent at its last Monetary Policy Committee meeting on May 21.
The jump in May was the first since the CBE raised rates by 300-basis points and floated the Egyptian pound in November as part of a $12 billion International Monetary Fund (IMF) program to revive Egypt’s ailing economy.
“Inflationary pressures from cost push factors would not be affected by another rate hike,” said economist at Arqaam Capital Reham ElDesoki who expected no change to rates.
Egypt last week hiked fuel prices by up to 50 percent for the second time since November in another step to narrow its budget deficit.
“We expect the CBE not to react to the recent fuel price hikes as it is likely to wait for a few inflation readings to investigate any second round effects for the fiscal measures,” EFG Hermes economist, Mohamed Abu Basha, said.
Electricity prices are also expected to see a jump in the coming weeks, putting more pressure on Egyptians whose incomes and salaries have been slashed in half since the November flotation.
The fuel and electricity subsidy cuts are both part of the three-year IMF reform program, which also includes tax increases and lifting restrictions on foreign currency movement put in place after the uprising as foreign reserves ran low.

Source: Arab News