Egypt central bank keeps interest rates on hold

CAIRO (Reuters) - Egypt’s central bank kept its key interest rates on hold on Thursday, saying inflation was below target and leading indicators showed the economy had recovered in the last quarter of 2020.

The bank’s monetary policy committee held the overnight lending rate at 9.25% and the overnight deposit rate at 8.25% for a second consecutive time after cutting rates in September and November.

All but four of 14 analysts polled by Reuters predicted the central bank would keep rates unchanged.

The central bank chopped its benchmark rate by 300 bps in March and by another 50 bps in September and November. The overnight lending rate remains at 9.25% and the overnight deposit rate 8.25%, their lowest since July 2014.

The monetary committee said inflation was subdued because of the impact of the COVID-19 pandemic and government containment measures.

At its last meeting on Dec. 24, the committee adjusted its inflation target to 5%-9% from the previous 6%-12%.

“The decline in annual headline inflation was mainly driven by lower prices of fresh vegetables, reflecting their seasonal pattern as well as the partial reversal of the transitory shock in tomato prices,” it said in a statement accompanying the rates decision.

The economy grew by a preliminary 0.7% in the third quarter, up from a negative 1.7% the second quarter, soon after the pandemic first hit, the statement said.

“Globally, economic activity remains subdued despite the accommodative financial conditions, as the second wave of the COVID-19 pandemic, and its subsequent containment measures continue to weigh on the near-term outlook,” it said.

“On the other hand, the path to global economic recovery remains a function of the efficacy, availability and the rollout speed of vaccines, which could ease the level of uncertainty regarding economic activity over the medium term.”

The overnight rates remain well below the yields on treasury bills. The average yield on a three-month bill was 12.84% at an auction on Sunday.

Writing by Aidan Lewis and Patrick Werr; Editing by Kevin Liffey, Alexandra Hudson and Barbara Lewis