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Thursday, 16 February 2017

What we’re tracking on 16 February 2017

It’s MPC day: The Central Bank of Egypt’s Monetary Policy Committee (MPC) is meeting today to decide on interest rates. A Reuters poll earlier this week showed nine out of 13 economists expecting the central bank to hold overnight deposit and lending rates at 14.75% and 15.75%, respectively. Five out of seven economists surveyed by Bloomberg agree. “A further rate increase will not be of much help,” Radwa El Swaify, head of research at Pharos Holding, says. Bloomberg’s Ahmed Feteha nails it on the head when he writes: “With the majority of Egyptians without bank accounts, raising interest rates typically takes time to contain inflation. It can, however, immediately increase government borrowing costs and curb credit growth, economists say.” Adds El Swaify: A rate increases risks doing more damage than good to the economy and “would be negative for growth.”

On inflation, Chris Jarvis, IMF mission chief for Egypt, told Feteha: “We expected inflation to go up, as it did, for several months after the launch of the reform program,” but inflation should slow down “once these effects wear off, and so long as budget and monetary policies remain tight.”

There’s no love for Egypt this week from BMI, which is projecting “lackluster growth” in the coming quarters, and expecting the country’s sovereign creditworthiness to deteriorate further before improving. In its featured story on Egypt in its monthly MENA report for March 2017 (extracts here and here), BMI sees falling yields on sovereign debt as unjustified considering the marginal growth, which it projects to land at 3.2% for the year, below the Bloomberg consensus at 3.6%. “Yields on Egypt’s bonds will inevitably rise over the coming quarters given anticipated further hikes in interest rates in 2017 by 50bps to 16.25% and our expectation for a 15% depreciation in the EGP against the USD by the end of 2017. Slightly mitigating the implication of these trends is that while the country’s debt is relatively high (about 80% of GDP), only 19% of GDP is denominated in foreign currency, thus reducing exposure to currency movements.” In addition to slow growth, BMI has placed heavy weight on a slow recovery of tourism industry and only a marginal uptick in consumption given subsidy reforms, high unemployment, and a slight reduction of the fiscal deficit (forecast to drop to 9.9% of GDP in 2017).

Hey, investor relations officers: You officially have more time to disclose FY results. The Egyptian Financial Supervisory Authority (EFSA) has extended the deadline for submitting 1H2016-17 financial results for EGX-listed companies to 28 February, while companies filing full-year results will get an extra month and must disclose FY2016 results by 16 April. The decision came after a number of IROs requested extra time to digest changes to Egyptian Accounting Standards on how FX losses are to be treated.

Lionel Messi did not arrive in Cairo yesterday, postpones his trip to Egypt: The football great was due to visit as part of the Tour n’ Cure hepatitis C campaign, but pulled out after following FC Barcelona’s 4-0 defeat to Paris Saint Germain in the Champions League, Al Arabiya reported. The visit has not officially been rescheduled, a statement from the tour sponsor said, but a source told Al Masry Al Youm it is slated for next week.

Trump is at war with his own intelligence community: US President Donald Trump has blasted the US intelligence community for what he called “criminal” leaks that forced his national security adviser, Michael Flynn, to resign over apparent contacts with Russia. The news is the lead item on the front pages of most North American newspapers we surveyed earlier this morning (cf: WSJ and NYT as examples) as well as the Financial Times on the other side of the pond. Reuters also has the story along with a companion piece on Republican lawmakers joining calls for an investigation into the Trump administration’s ties to Moscow.

Yesterday, it was the special forces guys. Today, it’s the spooks: The Wall Street Journal alleges in an investigative piece that “U.S. intelligence officials have withheld sensitive intelligence from President Donald Trump because they are concerned it could be leaked or compromised, according to current and former officials familiar with the matter.” Journal columnist Daniel Henninger is already asking Is this Trump’s Watergate?

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