Egypt’s September Inflation Could Trigger IMF Consultation

Egypt’s headline inflation came in at under 4% in September, potentially triggering consultations with the International Monetary Fund (IMF) that could lead to lower interest rates. Under a one-year, US$5.2 billion loan agreement signed in June, Egypt committed to consult an IMF technical team if year-on-year inflation fell below 6% by the end of September and the IMF board itself if it fell below 4%.

In September, annual urban consumer price inflation edged up to 3.7% from 3.4% in August, the country’s statistics agency CAPMAS said on Saturday. The low inflation rate sharpens a dilemma for the central bank: whether to keep interest rates high to sell treasury bills and protect the currency, or lower them to encourage growth in an economy battered by the COVID-19 pandemic.

Some economists have said that if inflation remains low, the IMF could argue the central bank’s monetary committee should consider lowering interest rates when it next meets on Nov. 12. The slight increase in September inflation went against some analysts’ forecasts, who had expected the headline rate to be kept under pressure by lower food prices. However, CAPMAS said food costs increased by 0.3% month-on-month.

The August inflation rate was near the lowest since 2005. Inflation soared to a peak of 33.0% in July 2017 after Egypt implemented IMF austerity measures including a fuel price hike, a 13% value-added tax and taxes on tobacco, while halving the value of the currency against the dollar.