The expansion of the Egyptian private sector’s activities will continue to be constrained by rising interest rates, which are expected to maintain this trend under inflationary pressures, the Emirati Arqaam Capital said on Friday.
In a report titled, “Middle East and North Africa Strategy,” the bank said the next possible rate cut in Egypt could be in the third quarter of fiscal year 2019.
As emerging markets are tending to exit high-risk assets and rising inflation in Egypt, the central bank will delay rate cuts, limiting the private sector's ability to expand capital spending, the bank said.
In November 2016, Egypt adopted a flexible local currency exchange rate. The pound lost more than half of its value against the dollar. As the currency weakened, inflationary pressures rose to record levels.
In order to curb rising inflation, the central bank, sought to raise interest rates gradually by 700 basis points, significantly increasing investment costs and beginning to reduce them only this February.
During the last meeting of the Central Bank’s monetary policy committee in November 2018, the committee decided to keep rates for deposit and lending at 16.75 and 17.75 percent respectively, citing the country’s annual inflation rate in September and October, which reached 16 and 17.7 percent, respectively.
Egypt has relatively high growth rates at present, after years of slowdown as external and internal problems hit the domestic economy. Egypt’s GDP grew at a steady 5.4 percent in the second quarter of 2018 after rising for six straight quarters.
