Policymakers at the Central Bank of Egypt (CBE) will today decide on the lending and deposit rates. Consensus expectations are for the CBE to raise the overnight deposit rate by 50bp to contain inflation. Inflation in Egypt quickened after a month of cooling off, as rising food prices, a local hike in fuel costs, and a weaker currency added more pressure on consumers in July. While the renewed acceleration and upside risks to the inflation outlook suggest a rate hike is more than likely, investors will look to whether the CBE will allow for more currency flexibility and devalue the Egyptian pound. In recent weeks, a greater flexibility in the pound has emerged as an issue for Egyptian authorities who are seeking to secure a new loan from the International Monetary Fund. The pound remains overvalued on a real effective exchange rate basis, and the IMF has called for currency flexibility to avoid the build-up of external imbalances and to facilitate adjustment to shocks.
