CBE leaves rates on hold, in line with expectations: The Central Bank of Egypt left interest rates unchanged for the third consecutive meeting on Thursday, citing falling inflation, improving global financial conditions, and expectations of an economic recovery in a statement (pdf).

This was in line with analysts and economists surveyed in our poll ahead of the meeting: Nine of 10 respondents forecast the central bank to leave rates on hold, citing the weakening EGP, rebounding foreign interest in EGP-denominated bonds, and the likelihood of a pickup in inflation in the months ahead. The CBE had little room to maneuver, with the economic slowdown making a rate hike difficult, while cutting rates would undermine Egypt’s attractiveness to portfolio investors, Pharos’ head of research Radwa El Swaify said.

Where do rates stand? The CBE’s overnight deposit rate is at 9.25% and the lending rate is at 10.25%. The main operation and discount rates are both at 9.75%.

Emergency rate cut yet to filter through to the economy? “The Monetary Policy Committee’s (MPC) decision, which was in line with our expectations, was backed by the fact that the impact of the preemptive 300 bps cut to support domestic economic activity has yet to be seen on the ground,” said Alia Mamdouh, director of macro and strategy at Beltone Financial.

The unwinding of the government’s partial lockdown of the economy is good for growth: “The recently announced gradual easing of lockdown measures is expected to support the recovery of economic activity,” the bank said. The government yesterday fully lifted the curfew and allowed a host of non-essential services — such as restaurants, cafes and gyms — to re-open after three months’ of closure. International flights are due to restart at the beginning of July in a move the government hopes will rescue the country’s devastated tourism industry.

That being said, all options are on the table in the months ahead: “The MPC closely monitors all economic developments and will not hesitate to utilize all available tools to support the recovery of economic activity, within its price stability mandate,” it said. The MPC’s next meeting is scheduled for Thursday, 13 August.

The central bank’s decision leaves Egypt as one of the world’s most attractive carry trades, boasting the second-highest real interest rate. Leaving rates on hold is “crucial” to support foreign inflows into EGP bonds, said Mamdouh, who estimates that around USD 400 mn in foreign capital has been invested in treasuries in June. Egyptian fixed income securities saw around USD 17 bn in foreign outflows during the height of the covid-inspired emerging-market meltdown in March and April.