HC Securities and Investment said annual inflation continued to fall for the third month in a row, after a high of 14.1% in May, with monthly inflation falling 1% on a monthly basis below its forecast.
The annual inflation rate slowed to 7.5% in August from 8.7% in July, as monthly inflation reflected a 0.7% rise in prices compared with 1.8% in the previous month.
Core inflation also slowed to 4.9% in August from 5.9% in July, with the monthly consumer price index (CPI) falling 0.36%, compared to a 0.11% increase in July, according to the Central Bank of Egypt (CBE).
Monette Doss, the company’s macroeconomic and banking sector analyst, expects inflationary pressures to ease dramatically following the July decision to lift subsidies.
She explained that annual inflation fell below 9% year-over-year (y-o-y), within the CBE’s target of 9% (±3%) in the fourth quarter (Q4) of 2020, allowing the CBE to continue its monetary easing policy to stimulate economic growth and activity of the money market.
“Furthermore, in the global context of monetary easing, the European Central Bank cut its deposit interest rates by 10 basis points (bps) to -0.5% last week, as Egyptian treasury bills continue to provide attractive returns and encourage inflows from carry trade. We, therefore, expect the CBE to cut interest rates by 100 bps at its next meeting,” she said.
The Monetary Policy Committee of the CBE decided at its meeting on 22 August 2019 to reduce the interest rate by 150 bps, after keeping it unchanged for three consecutive meetings, following the last rate cut by 100 bps in February 2019.
