Economists are almost evenly split on whether the central bank of Egypt will increase interest rates during its monetary policy committee meeting on June 16 after an increase in inflation during the month of May.
Out of 11 economists, 6 anticipate that the bank will hold interest rates, while 5 expect that there will be an interest rate hike within the range of 25 basis points to a full percentage point.
According to head of Signet Institute Angus Blair, "Whilst a rise in interest rates might, in other scenarios, prove an efficient policy response, at the moment, given the increasingly heavy burden on the budget from rising debt payments, we do not expect a rise in interest rates this month."
Urban consumer price inflation shot up by 2 percentage points to 12.3 percent in the month of May, and core inflation surged to a yearly 12.23 percent during the previous month. This figure is up from 9.51 percent in the month of April.
The central bank of Egypt kept its overnight deposit rate at 10.75% during its last meeting on April 28 and held the overnight lending rate at 11.75%.
One economist anticipated the central bank to increase interest rates by 25 basis points on Thursday, 3 others predicted a 50-basis point hike and one forecasted a 100-basis point hike.
"Given the rapid rise in core inflation since the last MPC meeting, we think it will be hard for the central bank to keep a lid on inflation expectations without enacting at least a token interest rate hike", stated Alan Cameron of Exotix.
President Abdel Fattah al-Sisi is under immense pressure to boost Egypt’s economy and keep prices under control to prevent any backlash from the public whose mantras in the revolution included "bread, freedom and social justice".
According to Mohamed Abu Basha of EFG-Hermes, "With May inflation numbers showing headline inflation at a year high and more importantly core inflation at seven-year high, we see the situation warranting a rate hike by the central bank."
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