(Bloomberg) --
Inflation in urban parts of Egypt decelerated to its lowest level since November as authorities battle to offset the impact of the global coronavirus pandemic.
The annual inflation rate declined to 4.7% in May, staying well below the central bank’s target of 9%, plus or minus 3 percentage points, by the end of the fourth quarter. Consumer prices were unchanged on a month-on-month basis, according to data published Wednesday by the state statistics agency, CAPMAS.
The key catalyst for the deceleration was a decline in food and beverage costs, the largest single component of the inflation basket. Food prices fell 0.7% in May from a year ago and posted a 0.4% decline on a monthly basis.
“At this rate of inflation, Egypt’s central bank theoretically has a little more room to cut interest rates,” said Allen Sandeep, director of research at Naeem Holding. “However, given upside risks in the coming months, we expect the status quo to continue on monetary policy.”
The letup in inflation was welcome news at a time when authorities are seeing economic growth projections revised down due to the pandemic. Interest rates have been on hold following a record 300-basis-point cut at a March 16 emergency meeting.
Net international reserves have shrunk by over $9 billion over the past three months as capital outflows reached around $17 billion in March and April. Additionally, key sources of foreign-exchange revenue such as tourism, worker remittances and Suez Canal receipts have been hit by the virus.
IMF Emergency Funds Give Egypt Space to Reduce Local Borrowing
To offset an expected funding gap of $10 billion, Egypt has secured $2.8 billion in emergency aid from the International Monetary Fund and $5 billion from international bond markets. It also reached a preliminary deal with the IMF for an additional $5.2 billion under a one-year stand-by arrangement.
(Updates with analyst comment in fourth paragraph)
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