CAIRO: Egypt’s urban consumer price growth quickened to 9.5 percent in the 12 months to December from 9.1 percent in November and analysts said an interest rate hike by the central bank next month was now more likely.
The bank unexpectedly raised benchmark interest rates for the first time in more than two years in late November, citing upside inflation risks linked to supply bottlenecks and distribution channel distortions.
Economists said it had been forced to raise rates to ease pressure on the local pound currency because of dwindling foreign appetite for Egyptian assets since the overthrow of the country’s president last February.
"Given the balance of payments troubles and the fall in foreign exchange reserves used to support the pound, we think that the rise in (headline) inflation will give the central bank another reason to increase benchmark rates," said Said Hirsh, Middle East economist at Capital Economics.
In November, the central bank raised its overnight deposit rate by 100 basis points to 9.25 percent and the overnight lending rate by 50 points to 10.25 percent.
"We have penciled in a 50 basis points hike next month," Hirsch added.
The pound reached a fresh low of 6.036 against the dollar on Tuesday after figures last week showed the pace of a decline in Egypt’s foreign currency reserves did not slow in December. The central bank holds its next policy meeting on Feb. 2.
The urban consumer price index for December was 120.1 versus 109.7 a year earlier, state statistics agency CAPMAS said. The price acceleration from November was driven by faster food price inflation, which accounts for 44 percent of the consumer price basket.
Core consumer price inflation, which strips out subsidized goods and volatile items including fruit and vegetables, remained largely unchanged at 7.07 in the year to December, the central bank said. –Additional reporting by Mohamed Samir