Egyptian Inflation Decline Boosts Chance of Rate Cut

By Mahmoud Kassem and Abdel Latif Wahba

Jan. 10 (Bloomberg) -- Egypt’s inflation eased for a fourth month following a drop in global commodity prices, making it more likely the central bank will cut record high interest rates.

The countrywide inflation rate in the world’s largest wheat importer fell to 18.7 percent in December from 20.9 percent the previous month, the Cairo-based Central Agency for Public Mobilization and Statistics said in a faxed statement today. The rate was the lowest since July when the agency began to publish countrywide inflation rates on a monthly basis.

Prices fell 1.6 percent in the month, while urban inflation dropped to 18.3 percent, the lowest level since April, from 20.3 percent in November. Food and beverage prices declined 3.4 percent compared with November. Grain prices fell 3.2 percent, while vegetables declined 14.8 percent in December from the previous month, the agency said.

“We expect the decline in inflation to gain momentum in the coming months,” said Reham El-Desoki, a Cairo-based economist at Beltone Financial. “A clear decline in domestic inflationary pressures could result in a 50-100 basis point cut” in February. A basis point is 0.01 percentage point.

The central bank kept its benchmark rate at a record 11.5 percent for a third month on Dec. 26 as the inflation rate remained at more than double the top of the government’s target range.

Central Bank Governor Farouk Al-Okdah said Dec. 21 that Egypt may start cutting interest rates as inflation declines. The bank’s monetary policy committee next meets Feb. 12.

Wheat prices dropped 32 percent in the past 12 months.

To contact the reporter on this story: Mahmoud Kassem in Cairo at mkassem1@bloomberg.net