Monday, 13 February 2017

Pharos Holding Egypt MPC Watch: Expect MPC to Hold Rates Unchanged

Food prices continued to push the monthly inflation rate upwards in January

The urban headline inflation rate accelerated from 23.3% YoY in December to 28.1% YoY in January on unfavorable base-effect from the corresponding period in 2016. Meanwhile, the monthly headline inflation rate rose from 3.1% MoM in December to 4.1% MoM in January, reflecting a continued inflationary pressure from food and beverage items following the EGP flotation, the implementation of the value-added tax and the recent fuel price hike.

Leading signs suggest that the monthly inflation rate may be leveling off in February

February’s initial figures show a decrease in steel, cement and fodder prices compared with January’s prices. We also note that the recent exchange rate movement trend should ease inflation expectations. This supports our earlier argument that the inflation rate will likely accelerate within the first 2-3 months of flotation before leveling off.

MPC to hold interest rates unchanged on Thursday’s meeting

We reiterate that the current inflation rates reflect transitory cost push dynamics, following the economic reform measures undertaken in November 2016. Moreover, we note that the MPC’s decision to raise the interest rate by 300 bps in November 2016 targets containing the second round effect by altering consumers’ behavior towards more savings. Such an interest rate hike helped increase local currency deposits at commercial banks by EGP122 billion in November and December 2016 (versus an average increase of around EGP20 billion in Jan-Oct 2016). In addition, sales volumes across different sectors suggest that demand-pull inflation risk remains on the downside. Therefore, given the aforementioned inflation outlook, we expect the MPC to keep interest rates unchanged in the next meeting on the 16th of February 2017, since the costs of a rate hike outweigh potential benefits at this point.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.