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Tuesday, 19 September 2017

Monthly inflation peaked, economy won’t see negative impact from US rate increase -Amer

Central Bank Governor Tarek Amer does not appear too worried about the US Federal Reserve’s impending rate increase, saying in a strong, wide-ranging interview that the expectations has already been built in. “We don’t see this as affecting us so much right now,” he tells Bloomberg TV’s Yousef Gamal El-Din (runtime: 16:05). The economy can respond to the rate increase with “good policy” and Amer notes that Egypt already has sufficient reserves to act as buffers and respond to any potential changes in the sentiment or appetite of investors. “Our exposure to the external world is not that substantial or significant so that we are concerned about the changes in investor sentiment on emerging markets.”

Monthly inflation has “peaked,” Amer believes. The comments could be construed as a hint that the central bank is looking at a timeline on which to lower interest rates, as the Monetary Policy Committee said in July that it sees a “measured easing of the monetary policy stance to allow for a reduction in interest rates” as soon as “underlying inflation” starts to moderate. “I am getting more comfortable, much more comfortable,” Amer said. Amer has clear targets for the inflation path, saying the target for 2H2018 is 13% and he expects the rates to stabilise at around 7% in the medium term. (Our gut still tells us rates won’t come down before the final meeting of the year, scheduled for 28 December.)

The economy is responding comfortably to reforms, Amer said. “We are in the right direction and we are moving very fast … We’ve been aggressive in our monetary policy, and this has been resisted a bit … But we thought it’s important so we can get our shop fixed very quickly.”

Amer expects workers’ remittances to exceed USD 25 bn and says the central bank will continue working on integrating the parallel economy and to promote financial inclusion. After addressing monetary policy and working on the fiscal discipline, the Egyptian economy is now telling a different story — “We bit the bullet, put it on the right track” — and it is now diversified and not just locked-in in just short-dated treasuries.

“The investors are ahead of Moody’s and rating agencies,” Amer told Bloomberg, commenting on the former’s decision not to upgrade Egypt’s credit rating or shift its outlook to positive. “If the investors are here, that’s all what matters,” he says pointing to around USD 30 bn in investments through FDI and portfolio inflows. “If the ratings agencies are lagging behind, I think this is up to them.”

The “tough” economic reform measures and decisions are “done,” Amer said. The next IMF review is just a “regular review … the program is working very fine.” He reiterated that the reform program is homegrown and the IMF was only brought in to enforce “discipline” and ensure the “fiscal” side is under control.

Movements in the exchange rate against the USD have not been substantial because “it is a very thin market,” Amer told Gamal El-Din. “It is not a reference market, it is a very thin market … it doesn’t represent,” he explains. “I cannot comment on [the current FX rate], but I can tell you … local industry is emerging very quickly, exports are emerging very quickly, and we expect this to continue … we are happy that the fundamentals are working.”

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