CAIRO (Reuters) – The Egyptian central bank’s monetary policy committee is expected to hold interest rates steady on Thursday as it continues to assess the impact of last month’s rate hike of 150 basis points, a Reuters poll showed.
Eight out of 10 contributors to the Reuters poll said they expect the committee to keep rates unchanged on April 28.
Egypt has been facing a foreign currency shortage since the 2011 uprising drove away tourists and foreign investors, both major sources of hard currency. Reserves more than halved from 2011 to $16.56 billion in March.
On March 14, the central bank devalued the pound to 8.85 pounds per dollar from 7.73. Two days later it strengthened the currency slightly to 8.78 per dollar as it adopts a more flexible exchange rate policy.
In an attempt to curb inflationary pressures after the devaluation, the central bank exceeded expectations and raised its overnight deposit rate to 10.75 percent from 9.25 percent and the overnight lending rate to 11.75 percent from 10.25 percent.
“The central bank increased interest rates by an aggressive 150 basis points at the last meeting as a preemptive move against likely inflationary pressures following the March 14 devaluation of the pound,” said Mohamed Abu Basha, economist at EFG Hermes.
“We don’t see another hike as likely at this meeting. The central bank needs to assess the impact of the previous hike before embarking on its next move, in our view,” he said.
Annual urban consumer inflation eased for the third consecutive month in March to 9 percent from 9.1 percent in February
Economic and political instability since the popular uprising in 2011 that toppled autocrat Hosni Mubarak contributed to comparatively slow growth of around 4.2 percent in the last fiscal year. The government expects growth of around 5 percent this fiscal year.
Bankers said a black market for dollars has sucked up foreign exchange liquidity from banks and put pressure on the pound. But the central bank has been taking measures to divert liquidity back into the banking system.
In March, it eased capital controls that were imposed a year earlier. Egypt’s top two state banks, the National Bank of Egypt and Banque Misr, began offering Egyptian pound investment certificates with a 15 percent yield in return for foreign currency.
Two economists expected the central bank to defend the Egyptian pound further by hiking rates at Thursday’s meeting.
“The central bank would have to raise rates to attract deposits,” said Angus Blair, chairman of business and economic forecasting think-tank Signet Institute.
“The pressure to attract deposits remains and we expect an increase in interest rates with the goal of doing so,” he added, expecting a 100 basis point hike.