“Egypt’s first interest rate cut since exchange rate liberalization has been made possible by an improvement in macro-economic stability, underpinned by more orthodox policy settings under the country’s IMF program,” Fitch Ratings said on Tuesday. The CBE’s 100 bps rate cut earlier this month came on the back of annual headline inflation dropping to 17.1% in January, Fitch said while noting that inflation in Egypt is well above peers and remains a sovereign rating weakness. The ratings firm believes that inflation will fall further this year but remain in double digits, averaging at around 13%, assuming further subsidy reform in July leads to energy price increases, especially given higher oil prices. “Even so, we expect the CBE to cut rates further this year (another 200-300 bps) even as global rates rise, while maintaining positive real interest rates. These factors were reflected in our revision of the Outlook on Egypt’s ‘B’ sovereign rating to Positive last month.”

However, “relatively weak governance, security and political risks continue to weigh on the rating,” read the statement. These risks appear to be balanced out by the fact that reforms have not led to a visible social backlash. Fitch notes that “the authorities have minimized the potential for opposition figures to build political momentum ahead of next month’s presidential elections.”