Egypt to Keep Record-High Rate With Eye on Fuel Hike, IMF Review

(Bloomberg) -- Egypt is poised to keep interest rates at a record high as it awaits the full inflationary impact of a fuel-price hike and the completion of a key International Monetary Fund review.

With the broader effects of Egypt’s third fuel adjustment of 2024 only due to be reported in December and the IMF saying further discussions are needed, caution is likely to reign on Thursday.

All eight economists in a Bloomberg survey expect the central bank to leave the benchmark deposit rate at 27.25% for a fifth consecutive meeting.

The North African nation hiked the price of a range of fuel products by an average of 9.2% in October, part of an IMF-backed drive to trim the budget deficit by replacing state subsidies with targeted social spending. 

The central bank “has little leeway but to keep rates on hold” until the fallout from the fuel increase is clearer, said Mohamed Abu Basha, head of research at Cairo-based investment bank EFG Hermes.

An IMF mission has been in Cairo this month for the latest review of Egypt’s expanded $8 billion program. On Wednesday, the lender cited “substantial progress” in discussions, but said more talks would be held in the coming days. The latest review should unlock a $1.3 billion loan tranche.

Authorities will likely play it safe with rates until Egypt passes the review, according to Jean-Michel Saliba of Bank of America Corp.

“Markets are not yet aware whether the fourth review will conclude on time or be delayed,” he said.

The Middle East’s most populous nation has raised interest rates by 8 percentage points this year. That’s helped to slow inflation — with the annual rate dropping to around 26% from 36% in February — even after authorities let the Egyptian pound plunge nearly 40% in March as part of an effort to get foreign funding. But a new wave of subsidy cuts has altered that trajectory, at least temporarily.

Egypt’s central bank said in September its current interest rate would remain appropriate “until a significant and sustained decline in inflation is realized.”

Saliba and Abu Basha are among economists who see the regulator waiting until at least the end of the first quarter of 2025 before beginning an easing cycle.

February’s inflation reading will be particularly important, showing “the normalization of the sizable base effects from this year’s inflation shock,” said Abu Basha.

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