African Central Banks Poised to Hold Rates as Inflation Softens
Comment of the Day

May 18 2023

Commentary by Eoin Treacy

African Central Banks Poised to Hold Rates as Inflation Softens

This article from Bloomberg may be of interest. Here is a section: 

A temporary slowdown in inflation may give Egypt’s MPC room to pause, especially after Governor Hassan Abdalla signaled higher interest rates are doing little to cool prices.

The central bank “is likely to remain data-led, and will see declining global commodity prices and a reduction in domestic inflation as supportive of their current monetary stance,” said Farouk Soussa, an economist at Goldman Sachs Group Inc. The monetary authority sees inflationary pressures stoked mainly by supply issues, “reducing the rationale for a further hike in the medium term,” he said.

Eoin Treacy's view

Emerging markets have no choice but to aggressively hike rates when inflation surges. They don’t have deep domestic capital markets and rely on offering a real rate of return to attract inward investment. Egypt’s year over year inflation has probably peaked at around 30% but with overnight rates closer to 18%, there are still sharply negative real rates. That’s the primary reason for the downtrend in the Egyptian Pound. 

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