Egypt annual inflation rate slows as currency effects fade
December 12, 2017 | 1:08 am| | | Start Conversation
Egypt’s headline inflation rate rose at its slowest pace in nearly a year in November as the effects of a currency flotation began to fade, raising expectations that the central bank would soon begin to cut interest rates.
Urban consumer prices rose 26 percent in November compared to 30.8 percent a year earlier, according to the official statistics agency, CAPMAS. The month-on-month inflation rate eased to 1 percent compared to 1.1 percent in October. Food and beverage prices, which make up the single largest component of the price basket, rose by 32.3 percent.
Officials have said they expected the inflation rate to ease from highs in the mid-30s as the base effects of the currency flotation begin to wear off. The Egyptian pound has halved in value against the dollar since most currency controls were lifted, pushing up prices in the import-dependent economy where millions live in poverty.
“This is generally within expectations. I think it is likely that the central bank will begin cutting rates but not at the next meeting in December, at the one after,” said Reham El Desoki, senior economist at Arqaam Capital in Cairo.
El Desoki said she expected the central bank to cut policy rates by about 500 basis points over the course of 2018, but to follow a more dynamic policy in response to price shocks, raising and dropping rates as it guides inflation toward its target.
The central bank has repeatedly raised interest rates since the flotation to damp soaring prices, but faced criticism from business leaders who said the high cost of borrowing would stifle growth.
The central bank held the benchmark rate at 18.75 percent at its last meeting in October and has set an inflation target of 13 percent, plus or minus three percentage points, for the fourth quarter of 2018, and single digits thereafter.
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