Inflation data released yesterday bolstered bets that the Central Bank of Egypt will hike rates at its 22 September Monetary Policy Committee meeting.
Recall that the CBE has left rates unchanged at its previous two meetings, stating that the deviations of consumer prices from its target are transitory and that the elevated pace of price increases would be temporarily tolerated. With inflation accelerating to a near four-year high of 14.6 percent y/y in August from 13.6 percent y/y in July and pressure on the currency mounting, policymakers will find it hard to justify a decision to leave rates on hold.
The August inflation print underpinned the notion that price pressures in Egypt are broad-based with core inflation — which strips out volatile items such as food — accelerating by more than 1ppt to 16.7 percent y/y. Moreover, there is the risk of another devaluation in the currency as currency fundamentals continue to deteriorate.