With inflation rates jumping to its highest level in five years in May to hit 13 per cent compared to 11 on April , the Central Bank of Egypt opted to keep its overnight lending and deposit rates at …and 8.75 per cent.
This was the third time the CBE’s Monetary Policy committe decides to keep the rate as is since it cut the rates by 0.5 per cent in January.
The decision was expected as the effect of the hike in inflation would have been exacerbated by a cut in the rates as more people would be able to borrow more money causing more demand and price increases. Tergeting inflation is a top priority for the CBE’s monetary policy which definitely prefers a single digit rate.
The breakdown of the 13.1 per cent rate , the highest since early 2010 shows it was mainly driven by a significant iccrease in food prices. food prices account for 40 per cent of the basket of goods according to which the infation rate is calculted. food inflation rose from 9.8 year on year in April to 14.8 per cent in May.
observers atribute this increase to the depreciation of the pound together with restrictions imposed on foreign currency which adds to the burden of food importers.
As the effects of last year’s energy price hikes will disapper from the annual comparison in July (a year after its applicatio, , it is expected that inflation should fall back in the coming months maybe encouraging the CBE to cut rates.
Last July , Ibrahim Mahleb’s government reduced fuel subsidies pushing transportation and food prices very high.
Meanwhile, it is expected that June’s inflation rate would be higher due to the he seasonal increase in food and beverages prices before Ramadan, in accordance with the recent depreciation of the Egyptian pound that led to increasing their costs of importation, despite the decline in their international prices.
