CBE leaves rates on hold in first meeting after record cut: The Central Bank of Egypt left rates on hold on Thursday, less than three weeks after it made a dramatic 300 bps rate cut to shore up the economy amid widespread disruption caused by the covid-19 pandemic. The central bank left the overnight deposit rate at 9.25% and the lending rate at 10.25%, while the main operation and discount rates remain at 9.75%, the bank said in a statement (pdf).

This is what analysts had predicted: Ten of 11 analysts we surveyed ahead of the meeting expected the central bank to hold off on further easing for the time being, citing uncertainty over the trajectory of inflation and a deterioration of the carry trade amid accelerating capital flight from emerging markets.

What the CBE said: “The MPC decided that keeping key policy rates unchanged remains consistent with achieving the inflation target of 9% (+/-3%) in 4Q2020 and price stability over the medium term,” the bank said. Reuters and Bloomberg also had the story.

The door is still open for further cuts: The CBE reiterated that it “will not hesitate to utilize all available tools” to support the economy.

“The MPC’s decision, which was in line with our expectations, came on the back of supportive inflation rate readings that allowed for an exceptional 300 bps rate cut,” said Beltone’s Alia Mamdouh. “We maintain our average inflation expectations of 6.5%, which should keep headline inflation rates within the CBE’s target range.”

Inflation likely to tick up on covid and Ramadan spending: Mohamed Saad, equity analyst at Shuaa Securities, forecasts inflation to rise marginally to 5-7% over the coming months as consumers hoard goods and spend big for Ramadan. Expectations that the government will provide further relief to businesses and consumers by lowering fuel costs will help to keep prices within the CBE’s target range, he said.

Falling EGP will give the central bank more room for manoeuvre -Capital Economics: James Swanston, MENA economist at Capital Economics, warned that Egypt’s current account deficit will begin to widen if the EGP maintains its current rate and urged the central bank to let the currency slide against the greenback. “We expect the central bank will loosen its grip on the EGP and, if this is done soon, there is unlikely to be a sharp fall in the currency and inflation should remain in check. This would allow interest rates to be cut further to support activity.”

Enter Sigma’s Abou Bakr Imam with the counterpoint, who said that it is unlikely that the central bank is actively propping up the EGP, saying he thinks demand for hard currency has fallen as imports have slowed.

The EGP remained steady at 15.68 against the greenback on Thursday. The currency has fallen only 21 piasters since its peak in late February, and has fluctuated between 15.68-15.69 for the past two weeks.

Make a long-term policy prediction at your peril: Pharos’ head of research Radwa El Swaify, who has the central bank maintaining rates through to the end of the year as a base case, said that it is becoming more difficult to predict how policymakers will act as the known unknowns continue to swirl. “So many changes can happen in nine months, especially with growth and inflation, you cannot judge it now. There are so many unknowns at this point,” she said.