Capmas: Inflation rate reaches 10 percent in October
CAIRO: The Central Bank s (CB) Thursday decision to raise overnight interest rates by 0.5 percent to help curb inflation has drawn mixed responses from local analysts. Meanwhile, a new Central Agency for Public Mobilization and Statistics (Capmas) report shows the annual inflation rate has reached a 21-month high of 10 percent in October.
In a statement, CB Deputy Governor Tarik Amer said the decision to raise the overnight deposit and lending rates to 8.5 percent and 10.5 percent, respectively, was made to counter the observed trends exerting pressures on the various price indices, or inflation. The annual inflation rate recorded in October climbed 0.4 percent from its 9.6 percent September level according to Capmas.
Amer s office declined The Daily Star Egypt s request for a telephone interview, saying the deputy governor only issues written statements.
EFG Hermes research analyst Reham El-Desoki says the decision was premature.
The stability in money supply and credit growth, the recent moderation of inflationary pressures [shown by recent data], the high lending-deposit interest rate spread and an apparent government bias toward stimulating economic growth had led us to believe a general rise in interest rates was not warranted at this point, El-Desoki says.
The 0.4 percent inflation growth rate recorded in October is down from 0.7 percent recorded in September. CB also announced net foreign currency reserves recorded an all time high of $24.06 billion at the end of September.
In spite of the positive numbers, Amer said the CB expects the inflation rate to maintain its current level, at least in the short term.
In the near-term, the annual inflation rates are expected to remain high as they continue to carry the effects of the previous price increases related to the supply shocks and administered price adjustments, he said.
Beltone Financial head of research Angus Blair agrees with CB s decision, but not entirely with the reasons cited behind the increasing inflation rate.
I think it was absolutely necessary [to raise rates] given the rise we ve seen in inflation, Blair says.
Commenting on Amer s statement that the rise in inflation was due to the continued acceleration in economic growth, particularly in construction and manufacturing sectors and second round effects from the July fuel price hike, Blair says his analysis is partly true.
Inflation, Blair adds, is controlled by many factors, the most driving of which in the Egyptian market has been opportunistic price hikes.
We haven t really developed broad economic growth because people on the street can t really feel it yet, said Blair. Then, it develops into a political issue and that s what the government should watch out for . It s hard to control a free market, but if there are opportunistic price hikes, the government should instigate checks and maybe even intervene periodically to control prices.
With an already high lending rate, both El-Desoki and Blair express concern over the rise, but El-Desoki says it was likely implemented to maintain the 2 percent buffer for the deposit rate.
Amer s CB statement said future interest rate decisions will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming data releases.
