The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) left rates on hold during its first meeting of 2021 on Thursday, citing “subdued” economic activity. The second wave of the covid-19 pandemic and efforts to contain it continue to weigh on the economy’s near-term prospects, despite loose financial conditions, the central bank said in a statement (pdf) following the meeting.

Where do the rates stand? Overnight deposit and lending rates remain at 8.25% and 9.25% respectively, while main operation and disc. rates each stay at 8.75%. This is the second consecutive meeting that the CBE has left rates unchanged after reducing them by 400 bps during 2020, including a record 300 bps rate cut in March.

The hold was expected by 11 of 12 economists we surveyed last week. The pool was mostly in agreement that real interest rates were within the CBE’s target range of 2-3%, and that it had been conservative with liquidity injections last month, causing a slight increase in interest rates. Additionally, the meagre growth of money supply since November would cause them to hold off from making any cuts. The steady rate is expected to boost FX inflows by offering attractive yields to foreign investors, as per the survey.

Inflation has remained stubbornly low despite the stimulus: Average annual headline urban inflation in 4Q2020 came in at 5.2%, below the 6% lower bound of the CBE’s initial target range. The CBE has set a new 7% (± 2%) target.

Blame covid: The weak price growth is a result of the pandemic, the CBE said yesterday, highlighting the government’s efforts to contain the outbreak and its market interventions to prevent supply shortages. “Given the balance of risks, the CBE undertook several preemptive measures to support economic activity while remaining consistent with achieving its price stability objective over the medium term,” it said.

This could change in the months ahead: “Inflation is going to start recording higher figures every month throughout the first three quarters of 2021, and will start slowing down a bit towards 4Q2021, which is why we had expected a rate cut,” Pharos’ head of research Radwa El Swaify told Enterprise. However, the average will remain within the 7% (+/- 2%) throughout 2021, she added.

More fuel for the carry trade: “We believe Egyptian treasuries will remain attractive, underpinned by a strong EGP and rising real interest rates given the low inflation,” Beltone Financial’s Alia Mamdouh wrote in a note following the meeting. “Among emerging markets with comparable yields, Egypt still stands out with a relatively less impacted economy from the repercussions of the COVID-19 pandemic, as it provides growth potential.”

Was that the last chance to cut before 4Q? Most likely, El Swaify tells us. She sees inflation rising from Ramadan until the final quarter of the year due to seasonal factors. EFG Hermes’ Mohamed Abu Basha has penciled in a 100 bps rate cut this year, but toward 2H2021.