The Central Bank of Egypt (CBE) left interest rates on hold on Thursday, hours after Hassan Abdalla was appointed governor following Tarek Amer’s surprise resignation on Wednesday. The CBE left the overnight deposit rate at 11.25%, the overnight lending rate at 12.25%, and the main operation and disc. rates at 11.75%, it said in a statement (pdf).

Analysts had expected the central bank to raise rates: Analysts surveyed by Enterprise and Reuters expected the central bank to hike rates in response to rising inflation, which hit a fresh three-year high of 13.6% in July. Some market watchers changed their forecast following Amer’s resignation while others expected the central bank to press ahead.

The CBE didn’t stray from its recent messaging on inflation: “The [Monetary Policy Committee] decided that keeping policy rates unchanged remains consistent with achieving price stability over the medium term,” the CBE said in the statement. It reiterated that inflation above its target of 7% (± 2%) by the end of the year “will be temporarily tolerated.”

A good thing for our public finances: “The rush to raise interest rates increases the cost to the economy, especially to public finances, which are already facing huge pressure,” said Esraa Ahmed, economist at Al Ahly Pharos. What’s more, raising interest rates is unlikely to bring foreign investors back to Egypt due to the rising returns on USD-denominated assets abroad and the current risks surrounding the EGP, she added.

Even as global pressures refuse to abate: The MPC reiterated its view that inflation is being imported into the local market as a result of global macroeconomic pressures resulting from the war in Ukraine and a tighter monetary environment. It also for the first time cited “increased geopolitical risk in South-East Asia” as one reason for the global slowdown, in an apparent reference to the recent flare-up in US-China tensions.

One good sign: Global commodities prices are on the decline after peaking in the wake of Russia’s invasion of Ukraine, the CBE said. Global food prices have fallen for four consecutive months and were helped last month with the breakthrough agreement between Ukraine and Russia to resume Ukrainian grain exports via the Black Sea. Oil prices have also fallen significantly and are now at pre-Ukraine war lows and edging towards USD 90 a barrel.

As focus shifts to the EGP, inflation may be allowed to go higher still: Abdalla’s appointment has added fuel to speculation that the EGP will need to slide more against the greenback to manage growing external imbalances and attract foreign capital back to the country — which would lead to a further rise in inflation. Prime Securities’ head of Research Amr El Alfy is among those calling for the new governor to give up tight control of the EGP and instead allow the currency to float against the greenback, suggesting that imported inflation is transitory and will likely fall back into single digits next year. A further hike in fuel prices could also put further upwards pressure on prices.

This is the second consecutive meeting during which the bank decided to leave rates unchanged. The MPC has hiked rates by 300 bps since March, but chose to leave them unchanged during its latest meeting in June, after inflation in May came in below expectations. The MPC said it will continue to assess the effects of its earlier hikes as it decides whether to resume its tightening cycle at its next meeting.

The EGX responded positively to the MPC’s decision and Abdalla’s appointment: The benchmark EGX 30 closed Thursday up 0.35%, after rising 2.2% the day before following the announcement of Amer’s departure.

The CBE will next meet to discuss rates on 22 September.

The news got attention internationally: Reuters | Bloomberg.