After inflation rose to record levels, “Bloomberg” expects to raise interest rates again

Data from the Central Agency for Public Mobilization and Statistics showed that the annual inflation of urban consumers in Egypt accelerated more than expected on an annual basis in April, according to the global economic agency “Bloomberg”.

The inflation number, which rose from 10.5% in March, exceeded the average forecast of 11.8% in a Reuters poll of 17 analysts, the agency said. EGCPY=ECI

Accelerating inflation will add pressure on the central bank to raise interest rates when it meets next week, and the bank’s target inflation rate is 5-9%.

“Inflation came in higher than expected due to the sharp rise in food prices in light of the currency devaluation and the Ukraine war,” said Mohamed Abu Basha of EFG Hermes.

The central bank devalued the currency by 14% on March 21 after leaving it little changed for nearly a year and a half.

“The Central Bank of Egypt is likely to raise interest rates by 50-100 basis points at its next meeting, given the high inflation and the tight Federal Reserve,” Abu Basha said.

Core inflation, which strips out volatile items such as foodstuffs, rose to 11.9 percent year-on-year in April from 10.1 percent in March, the bank said.

The Federal Reserve raised its benchmark overnight interest rate by half a percentage point on May 4, the biggest jump in 22 years.

Inflation in Egypt’s urban areas reached its highest level in nearly three years on the back of rising global commodity prices and the recent devaluation of the currency, giving the central bank more impetus to raise interest rates next week.

Food and beverage costs, the largest single component of the consumer price basket, jumped 7.6% in April compared to March, and the rise pushed monthly inflation to 3.3%, the Central Agency for Public Mobilization and Statistics said on Tuesday.

Global food prices have risen near the fastest pace ever, as Russia’s invasion of Ukraine chokes off crop supplies, and the stark fallout is in Egypt, the world’s largest wheat buyer, which is now grappling with rising import bills, as the conflict drives up grain and energy costs.

Compounding consumers’ pain, Egypt’s moves to increase domestic fuel prices in the April-June period and the pound’s depreciation in March ended nearly two years of exchange rate stability.

This rise means that the North African country risks losing the higher-priced barrier that has kept it attractive to foreign investors, and with annual inflation now at 13.1%, both key interest rates have turned negative when adjusted for rates for the first time since 2018.

The central bank said that “core inflation, a measure that excludes volatile items such as food, accelerated to 11.9% in April from 10.1% in the previous month. This is the highest since January 2018, according to Bloomberg data.”

The central bank already introduced its first interest rate increase in five years on March 21, the same day it allowed the pound to weaken more than 15% and economists at Goldman Sachs expect April and May to see a large part of the passage of the devaluation.

Egypt’s real interest rate has been one of the highest in the world in recent years, making it a favorite among foreign portfolio investors looking for returns until a US Federal Reserve rollback and the war quelled the global appetite for riskier assets.

The Fed last week enacted the largest interest rate increase since 2000 and indicated that it will continue to rise at this pace in its next two meetings, and other central banks are likely to follow suit, including Egypt when it announces its next interest rate decision on May 19.

“Global monetary tightening and interest rate competitiveness among emerging markets could create a solid ground for the central bank to enact further rate increases,” said Radwa El-Swaify, head of research at Cairo-based Al Ahly Pharos.

She added in a statement to “Bloomberg” that Egyptian inflation is likely to continue rising until it reaches its peak in August, which provides an additional justification for pushing interest rates higher.

However, raising interest rates may not be enough to reverse the capital outflows that have negatively affected Egypt’s international reserves.

Mohammed Abu Basha, in turn, said that “real prices will not matter much at this point,” adding that the global environment, whether it is the war in Ukraine or the very hawkish Federal Reserve Bank, is likely to affect the prospects for any noticeable recovery in pregnancy trade flows anyway. .

https://www.bloomberg.com/news/articles/2022-05-10/latest-egyptian-inflation-surge-sets-stage-for-more-rate-hikes


Source: بوابة الحرية والعدالة by fj-p.com.

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