Egypt central bank forecast to keep interest rates unchanged

CAIRO: Egypt's central bank is set to leave its main interest rate on hold on Thursday, a Reuters poll showed, possibly putting a pause on reductions as persistently high treasury yields fall too.

Of 16 analysts polled, 14 forecast the Central Bank of Egypt (CBE) would leave rates unchanged at its regular monetary policy committee meeting. Two others expected a cut of 50 basis points (bps).

The central bank slashed its benchmark rate by 300 bps in March and another 50 bps in both September and November. The overnight lending rate is now 9.25% and the overnight deposit rate 8.25%, their lowest since July 2014.

Despite the declines, yields on government treasuries had been climbing since April, when the pandemic prompted investors to pull funds out of emerging markets. A 91-day treasury bill yielded an average 13.01% at an auction last week, up from a low of 12.11% on April 14.

This was at a time when the government's treasury holdings have been rising, swelling by more than 15% in the nine months to end-September, official data show, pushing up its interest bill.

Over the last two weeks, yields have once again begun to fall. On Sunday the yield on a 91-day T-bill dropped to 12.46%.

"It is not clear why yields have not declined more sharply thus far," said Farouk Soussa, an economist with Goldman Sachs. "But we expect this to start happening in the coming weeks and months."

Analysts said the central bank was likely to leave overnight rates steady following a mild resurgence in inflation.

Urban inflation accelerated to 5.7% in November from 4.5% in October, the state statistics agency CAPMAS said, still below the central bank's target range of 6-12%. Inflation has been creeping up after falling to an annual 3.4% in August, near its lowest since 2005.

"We do not expect any further rate cuts at the upcoming Monetary Policy Committee meeting this month, after inflation ticked higher in November," said Callee Davis, an economist at NKC African Economics.