Central Bank of Egypt surprises as it leaves interest rates unchanged: The Central Bank of Egypt’s Monetary Policy Committee (MPC) left key interest rates on hold last Thursday, going against expectations that it would cut rates by as much as 100 bps. The MPC left the overnight deposit and lending rates at 15.75% and 16.75% respectively and also left on hold its main operation and discount rates at 16.25%, the CBE said in a statement (pdf).

This wasn’t what (most) pundits were expecting: After last month’s surprise 100 bps rate cut, most economists had expected that last week’s meeting would see the central bank cutting rates again ahead of Ramadan, the next round of subsidy cuts, and the summer and back-to-school season. Buoyed by the unexpected gift of the US Federal Reserve’s signal that it was done raising rates, Enterprise’s poll of analysts saw six out of 10 economists suggesting the MPC would have breathing room for a cut thanks to an appreciating EGP and improving fundamentals. Bloomberg’s poll suggested the same, with only Reuters’ survey suggesting the MPC would leave rates on hold.

So, who called it? From the Enterprise poll: EFG Hermes’ Mohamed Abu Basha, Shuaa’s Esraa Ahmed, Naeem’s Allen Sandeep and Multiples’ Omar El-Shenety all said the MPC would leave rates on hold.

So, why no rate cut? The central bank cited accelerating inflation in February, weakening global economic activity, trade tensions, weakened global financial tightening, and increases in oil prices for its decision to keep rates on hold. The decision “is consistent with achieving the inflation target of 9% (±3 percentage points) in 4Q2020 and price stability over the medium term,” the statement reads.

Inflation, EM volatility narrowed the window for monetary easing: February’s accelerating inflation narrowed “the margin of positive real rates ahead of upcoming subsidy cuts,” EFG Hermes’ Abu Basha told Reuters. Abu Basha also pointed to recent volatility in emerging markets, which he said has stalled the rally of the EGP and “slightly increased risk aversion.”

The “astonishing” decision to keep rates on hold may undermine the positive impact on the economy of February’s rate cut, Sigma Capital’s Dina Rofael tells Bloomberg. “When a central bank takes a decision to cut, it should be a cycle. To have an impact on the economy, there should be more than one cut taking place, one after the other.”

Forget about a significant recovery in capex spending until the fall: Last month’s rate cut was seen as a “good start” but not quite enough to encourage businesses to start borrowing for capex. Beltone Financial’s Alia Mamdouh had said at the time that the cut “will improve business sentiment, particularly with local investors, but we believe another cut will remain key for a material impact on unlocking capex lending potential.”