Business leaders in Egypt have roundly welcomed the decision of the Central Bank of the country to cut interest rates for the first time in six months as slowing inflation and a stable currency allowed the central bank to shrug off the risk of contagion from an emerging-market selloff.
The Monetary Policy Committee reduced its benchmark deposit rate by 150 basis points to 14.25% and its lending rate to 15.25%, the bank said in a statement.
The rate cut will impact cost of capital and spur growth in a country many analysts see as making the required reforms to move the economy forward.
Telecom Egypt for example will save 20% on financing costs after the Central Bank of Egypt cut interest rates, a company official has said.
“The interest rate cut positively affects Telecom Egypt’s profits, as it will reduce financing expenses by 20% on the company’s loans, estimated at 11.7 billion pounds ($708 million),” the official told Reuters on condition of anonymity.
Industry leaders in Egypt who have hailed the central bank’s decision to cut rates, say it would stimulate investment, though they cautioned that further cuts are needed.
“As incoming data continued to confirm the moderation of underlying inflationary pressures, the MPC decided to cut key policy rates,” the central bank said.
“This remains consistent with achieving the inflation target of 9%, plus or minus 3 percentage points, in 2020 Q4 and price stability over the medium term.”
The move may boost what’s already the fastest economic growth in the Middle East, while a favorable inflation outlook means it’s unlikely to dim Egypt’s allureas one of the most profitable carry trades in emerging markets, even as a U.S.-China trade war hits assets elsewhere.
“It’s higher than expected and will be well received by the markets,” Mohamed Abu Basha, head of macroeconomic analysis at Cairo-based investment bank EFG-Hermes, said of the reduction.
“Another cut of maybe 100 basis points will start to trigger the capital expenditure cycle and encourage businesses to start investing,” he said.
The Arab world’s most populous country has been on a mission to tame inflation stemming from a late-2016 devaluation of the pound and other measures enacted to secure a $12 billion loan from the International Monetary Fundand revive the economy after years of turmoil.
The central bank said “the pace and magnitude of future policy rates adjustment will continue to be subject to confirmation that inflation expectations are anchored at target levels that are consistent with disinflation and price stability over the medium term.”
“Egypt remains one of the highest yielding emerging markets in real terms for offshore investors,” said Bilal Khan, senior economist at Standard Chartered Plcin Dubai. The bank expects “significant additional easing” of up to 400 basis points by June.
