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EGP / USD at CIB: Buy 15.70 | Sell 16.25
EGP / USD at NBE: Buy 15.80 | Sell 16.50
PARALLEL MARKET: 17.00-17.25, per Reuters, limited volume

EGX30 (Sunday): 9349.9 (+6.12%)
Turnover: EGP 1.477 bn (239% above the 90-day average)
EGX 30 year-to-date: +33.45%

Foreigners: Net long | EGP +290.6 mn
Regional: Net long | EGP +39.1 mn
Domestic: Net short | EGP -329.7 mn

Retail: 65.6% of total trades | 54.9% of buyers | 76.4% of sellers
Institutions: 34.4% of total trades | 45.1% of buyers | 23.6% of sellers

Foreign: 16.5% of total | 26.3% of buyers | 6.6% of sellers
Regional: 9.4% of total | 10.7% of buyers | 8.1% of sellers
Domestic: 74.1% of total | 63.0% of buyers | 85.3% of sellers

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PHAROS VIEW

Rebalancing the Egyptian Economy: Reform in Action

Last week, Egypt unleashed broad fiscal, monetary and structural measures aiming at reviving the economy including 17 pro investment policies approved by the Supreme Investment Council, the liberalization of the FX rate, raising petroleum price-at-pump, and the CBE raising its two standing facilities’ interest rates by 300 bps.

The hike was needed to support the local currency by easing dollarisation, attracting foreign funds, and anchoring inflation expectations. In reaction, inflation expectations are high whilst wage growth expectations remain low/flat. As a result, people would rush to consume more now in order to hedge against weaker purchasing power in the future, which in turn adds to current inflationary pressure. The interest rate hike is meant to offset the behaviour by making savings more attractive than consumption.

Pharos Holding believes the official FX rate pass-through, and the price reaction to the fuel subsidy cut, will peak in three months’ time. When the fuel subsidy reform first took place in 2014, headline inflation rose from 8.76% in June 2014 to 11.84% in October 2014 before decelerating to 9.09% in November 2014. Accordingly, we estimate inflation to accelerate to 21.6-25% in the short-term and to average around 16-18.5% in FY2016/17. Tap here to read the full research note.

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