CAIRO- Egypt's Central Bank is likely to keep its main interest rates unchanged this week, even though inflation dropped to an eight-month low in July, a Reuters poll showed.
Of 11 analysts polled, nine forecast that the central bank would leave rates unchanged at its regular monetary policy committee meeting on Thursday. Two dissenting analysts forecast a 50 basis points cut.
Egypt's annual urban consumer price inflation fell to 4.2% in July from 5.6% in June and 4.7% in May, its lowest since November, the central statistics agency CAPMAS said on Monday. This keeps it well below the central bank's target range of 6% to 12%.
"We expect inflation to rise over the coming months but, crucially, it is likely to stay below the mid-point of the CBE’s target range," said Jason Tuvey of Capital Economics in a research note. "Indeed, survey evidence suggests that underlying price pressures remain subdued."
Some analysts expected the central bank to lower rates to boost economic growth, bogged down by the spread of coronavirus earlier this year.
The pandemic is expected to slow growth to 3.1% in the fiscal year that began on July 1, according to a Reuters poll last month. Before the pandemic, the government had expected 2020/21 growth of around 6%.
"Any cut will not be very useful for the economy at the current time, especially with the existence of many lending initiatives," said Aboubakr Emam of Prime Holding.
The central bank for several months has been extending low-interest credit to tourism companies, real estate developers and small- and medium-sized enterprises hurt by the pandemic.
The coronavirus has devastated some of Egypt's main sources of foreign currency. Tourism has been all but shut down since mid-March and remittances from workers abroad have slowed.
The government says tourism represents 5% of gross domestic product, but analysts say the figure may be as high as 15% if indirect jobs and spending as well as investment are included.
The International Monetary Fund in June approved a $5.2 billion 12-month stand-by arrangement to help Egypt cope with the pandemic and plug budget and balance-of-payments shortfalls. In May, it approved $2.77 billion package through its Rapid Financing Instrument.
The overnight lending rate is currently 10.25% and the overnight deposit rate 9.25%, the lowest rates since early 2016, before Egypt embarked on a three-year, IMF-backed economic reform programme.
(Reporting by Patrick Werr, editing by Larry King) ((email@example.com;))