CAIRO (Reuters) – Egyptian inflation is expected to have fallen for a fifth month in February because of a favourable base effect, a Reuters poll showed on Friday, as analysts watch for the impact of a sharp devaluation and interest rate hike this week.
Annual urban consumer inflation is forecast to slow to 25.1% in February from 29.8% in January, according to the median forecast of 14 analysts polled.
Some expected the inflation rate to slow more rapidly.
“We expect that favourable base effects will continue to play their part and result in the headline inflation rate slowing to 23.6% year-on-year in February,” said James Swanston of Capital Economics.
“We expect headline urban inflation to record 27.1% year-on-year and 4.3% month-on-month, lower than previous month, due to base effect,” Heba Mounir of HC Securities said.
A median of five of the analysts surveyed expected core inflation, which excludes fuel and some volatile food items, to slow to 23% in February from 29% in January.
Inflation has been dropping steadily from a record high of 38.0% in September, but analysts have warned that it could surge again after a devaluation.
The Egyptian pound plunged on Wednesday to around 49.5 against the dollar from 30.85 pounds, the rate at which it had been fixed for the previous year, and the central bank said it would let the currency be determined by market forces going forward.
The depreciation may encourage people to convert foreign currency into Egyptian pounds, unleash some business activity and investment, and unblock a backlog of imported goods caused by a chronic foreign currency shortage and uncertainty over the exchange rate.
As part of a bid to stabilise prices and contain inflation, the central bank on Wednesday hiked interest rates by 600 basis points, with the overnight lending rate rising to 28.25% the overnight deposit rate reaching 27.25%.
Egyptian state-owned banks also issued three-year certificates offering 30% in the first year, 25% in the second year and 20% in the third year.
The banks have issued such certificates in the past to soak up liquidity and dampen inflation.
Egyptian Prime Minister Mostafa Madbouly has said the government would also work with merchants to stabilise prices and prioritise foreign currency access for basic commodity importers as the exchange rate shift takes effect.
The state statistics agency CAPMAS and the central bank are expected to release February inflation data on Sunday.
(Polling by Milounee Purohit and Anant Chandak; Writing by Aidan Lewis; Editing by Peter Graff)
