‘Transitory’ Upswing in Inflation Quiets Rate Hawks in Egypt

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Egypt’s central bank surprised most economists by leaving interest rates unchanged on Thursday, saying it can do little about external shocks to prices a month after delivering its biggest hike in nearly half a decade, Bloomberg News reported. The Monetary Policy Committee maintained the deposit rate at 11.25% and the lending rate at 12.25%, a decision predicted by only three of 13 analysts surveyed by Bloomberg. While its move in May was more hawkish than expected, the central bank now appears content to wait out what it called “transitory deviations” of inflation from target. “The MPC treats the developments stemming from the Russo-Ukrainian conflict to be among the exogenous shocks that are outside the scope of monetary policy,” it said in a statement. The central bank reiterated that the elevated pace of price increases “will be temporarily tolerated” relative to its target of 7%, plus or minus two percentage points, on average in the fourth quarter. Annual inflation was above 13% in April and May, meaning both Egyptian policy rates are negative when adjusted for prices. Central banks around the world are in a rush to curb inflation that’s accelerated to levels unseen in decades, fueled in part by higher energy costs and supply shocks from the war in Europe. After initially describing big price increases as “transitory,” policy makers in major economies like the US now regret using the label since inflation momentum is proving more lasting. Read more.