(Bloomberg) -- Egypt kept interest rates at an all-time high for a second consecutive meeting, looking to ensure a slowdown in inflation continues after a dramatic currency devaluation.
The central bank maintained the benchmark deposit rate at 27.25% and the lending rate at 28.25%, its Monetary Policy Committee said Thursday in a statement. The decision was correctly predicted by all 10 economists surveyed by Bloomberg.
“The Committee judges that the current monetary stance is appropriate to support the sustained moderation of inflation, and will continue to assess its transmission to the economy in a data-driven manner,” it said in the statement.
Caution is reigning even after inflation in the North African nation slowed for a fourth month in June, shrugging off the impact of a recent historic hike in the cost of subsidized bread and March’s near-40% plunge in the Egyptian pound against the dollar.
“More time is likely needed to ensure inflation expectations are firmly anchored,” Jean-Michel Saliba at Bank of America Corp. said before the rate decision. He expects the central bank to start an easing cycle at the end of this year at the earliest.
The Middle East’s most populous nation is recalibrating after a $57 billion global bailout involving the United Arab Emirates, International Monetary Fund and others gave a way out of a grinding two-year economic crisis.
The March 6 devaluation, a crucial step in galvanizing support, hasn’t caused the inflationary surge many economists expected. June’s annual figure of 27.5% is down from a record 38% last September and the lowest since early 2023, likely reflecting how the pound’s much lower value on the now-quelled local black market for dollars had already been influencing local pricing.
Renewed inflationary pressures may come from another round of subsidy cuts as a new government appointed this month pushes ahead with IMF-backed reforms. Hikes in fuel and electricity prices may be on the way.
Maintaining the record rate may also keep Egypt attractive to global investors who’ve piled into local debt since the currency fell in tandem with the central bank’s biggest-ever rate hike. Carry-trade returns have been in excess of 20%.
Egypt’s inflation-adjusted interest rate — currently at minus 0.25% — looks on track to turn positive later in the year if consumer prices keep slowing, potentially fueling yet-more interest from portfolio investors.
--With assistance from Salma El Wardany and Abdel Latif Wahba.
(Updates with central bank comment in third paragraph.)
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