A too-sharp decline in Egypt’s September inflation figures could result in “consultations” with the IMF, which would likely recommend more interest rate cuts under the conditions of a new $5.2 billion loan, according to Reuters.
The $5.2 bn stand-by facility Egypt agreed with the fund earlier this year, stipulates that the government would consult with an IMF technical team should the inflation rate fall below 6 percent by the end of September, and with the fund’s executive board if it dips below 4 percent.
The trend also sharpens a dilemma for the central bank: whether to keep interest rates high to sell treasury bills and protect the currency, or lower them to encourage growth in an economy battered by the coronavirus pandemic.
Egypt’s annual headline urban inflation slowed down to 3.4% in August — the lowest since 2005 — from 4.2% in July. Economists quoted by Reuters expect the September numbers to hover in the same region.
September figures are expected to be out on Saturday. Renaissance Capital had said last month it expects inflation to close out 2020 just below the Central Bank of Egypt’s (CBE) inner band target of 6-12%.
Reuters suggests that a nudge from the IMF to cut interest rates when the CBE next meets in mid-November would pose a quandary as policymakers have shied away from being too aggressive with monetary easing since they enacted an emergency 300 basis point cut in March to stimulate a recovery from covid-19.f
