• Wednesday, May 29, 2024
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BusinessDay

Why Egypt’s inflation slowed in April for the second month

Egypt goes from role model for Nigeria to basket case

Egypt’s inflation slowed in April to 32.5 percent for a second month on the back of a greater availability of foreign exchange and aggressive monetary tightening conditions.

The urban consumer price inflation rate decreased to 32.5 per cent in April from 33.3 per cent in March, slowing slightly more than analysts had predicted, data from the country’s statistics agency CAPMAS showed on Thursday.

On a month-on-month, prices rose by 1.1 percent in April, up from 1.0 percent in March. Food prices declined in April by 0.9 percent, though they were 40.5 percent higher than a year ago.

The Middle East’s largest population had recently embarked on currency flotation and hiked its lending rates in a bid to attract foreign investors into the economy.

With the worsening scarcity of dollars and the lack of investor confidence in the monetary policy regime, the Central Bank of Egypt (CBE) devalued the currency in March by 38 percent in one fell swoop to 50 EGP per US dollar from 30.8 EGP.

While allowing the EGP to trade freely against the dollar, the CBE also hiked interest rates by a record 600 basis points, its biggest rate hike yet.

To lure in more dollar supply, Egypt also agreed in February to sell the development rights to Ras al-Hikma, a prime Mediterranean resort destination, to Abu Dhabi for $24 billion.

Similarly, the recent $8 billion bailout fund from the International Monetary Fund, appeared to ease some price pressures for the North African country.

According to the IMF’s latest estimate, Egyptian inflation will slow to 15.3 percent by the end of June 2025, the conclusion of the next fiscal year.

Its estimate is for 32.1 percent by the end of next month. Egypt’s central bank is due to make its next interest-rate decision on May 23, Bloomberg reports.

Egypt promised the IMF in the March agreement it would resume tightening if necessary to prevent further erosion of the purchasing power of households.

The government last month also increased the price of a range of petrol, diesel and other fuels, as part of the commitment made to the IMF.