(Bloomberg) -- Egypt kept interest rates at a record high as it contends with an unexpected climb in inflation and fears of a wider conflict in the Middle East.
The central bank maintained its deposit rate at 27.25% and the lending rate at 28.25%, its Monetary Policy Committee said Thursday in a statement. The country’s fourth hold in a row was correctly predicted by all nine economists surveyed by Bloomberg.
The North African nation secured a $57 billion global bailout and devalued its currency about 40% earlier this year, but previous expectations of a rate cut in the fourth quarter are being recalibrated after an uptick in the consumer-price index in August and September.
Egypt may also be factoring in the risk of an all-out war between Israel and Iran that might trigger a spike in energy prices and further disrupt regional trade already roiled by Yemeni militant attacks on Red Sea shipping.
Inflation is expected to stabilize around current levels this quarter, with risks including “regional tensions, elevated international commodity prices, and higher than anticipated pass-through of fiscal measures,” the central bank said in its statement.
Consumer-price growth had been defying many economists’ predictions by maintaining a slowdown even after Egypt let the pound plunge in March to stem a two-year economic and foreign-exchange crisis. Authorities raised rates a combined 8 percentage points early in 2024.
That trajectory was interrupted by subsidy cuts over the summer that sharply hiked the prices of fuel and electricity, ending five months of cooling. Goldman Sachs Group Inc. is among those predicting Egypt is likely to wait until the new year to embark on its first monetary easing since 2020.
There’s “no rush for a rate cut at this stage,” according to Mohamed Abu Basha, head of research at Cairo-based investment bank EFG Hermes. Authorities may also be cautious of a potential second-round effect from energy-price rises, he said.
EFG Hermes and Goldman see Egyptian inflation remaining at roughly the same level until January, before a favorable comparison rate with the year earlier brings a sharp decline in February.
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