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Thursday, 5 July 2018

Fitch’s BMI Research sees monetary easing cycle continuing this year

Fitch’s BMI Research sees monetary easing cycle continuing this year: Fitch Group’s BMI Research expects the CBE to resume the monetary easing in the next two quarters, as it looks to boost private sector growth, the firm said in its North Africa report. The easing will take place gradually, as the CBE must also weigh the inflationary impact of last month’s subsidy cuts to fuel, electricity and water. BMI Research forecasts that inflation growth will average 15.2% y-o-y in 2018 and 12.1% in 2019. The central bank must also take care not to drive away foreign portfolio inflows lured by the attractive interest rates. As such, the firm expects the CBE to cut interest rates by a further 200 bps in 2018 and another 300 bps in 2019.

BMI also sees Egypt’s successful macro fundamentals story as underpinning continued portfolio inflows in the short term. “Strengthening confidence in the Egyptian economy and still attractive real interest rates are likely to drive a modest appreciation of the pound in the near term,” the firm said. “Beyond 2018, monetary easing is likely to fuel a very gradual depreciation as less attractive real interest rates in an environment of monetary policy normalisation across developed markets weigh on the exchange rate,” the report added.

Inflation and oil prices are our biggest risk factors: The biggest risks to these gains are any larger than expected inflation numbers resulting from the subsidy cuts, in addition to rising oil prices, the report noted.

BMI projects that Egypt’s real GDP growth for 2018 will come in at 4.8%, far lower than the government, IMF and World Bank’s expectations. It even forecasts that GDP growth will slip in 2019 and 2020 to 4.7% and 4.3% respectively.

On the regional level, we’re not the only ones straining under the weight of higher oil prices, which have raised the risk profile of North African nations. Morocco and Tunisia appear to hold the biggest economic and political risks in the region. The report sees Brent crude prices averaging USD 73/bbl in 2018, rising to USD 77/bbl in 2019.

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