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Monday, 13 August 2018

What we’re tracking on 18 August 2018

The CBE’s Monetary Policy Committee (MPC) is expected to keep interest rates on hold when it meets this Thursday. Despite a slowdown in inflation levels to 13.5% in July, compared to 14.4% in June, HC Securities Chief Economist Sara Saada says the CBE is expected to maintain overnight deposit and lending rates unchanged at 16.75% and 17.75% at its upcoming meeting to allow the economy more time to fully absorb the shock of price hikes that came about as the result of increases to the costs of energy. “We expect monthly inflation to start normalizing in August to c. 1% on the phasing out of first and second round effects of fuel, electricity, and tax reforms, resulting in nearly stable yearly inflation in August.” Inflation levels are seen “normalizing” by the fourth quarter of the year, “after which we may witness further monetary policy easing, if exogenous factors including international oil prices, exchange rate, and emerging market yields are favorable.”

Our friends at Pharos Holdings also hold the view that the CBE will maintain interest rates. The bank sees annual headline inflation rising to an average 13.2% in 1Q2018-19, up from an average 12.8% in the fourth quarter of FY2017-18, before it begins to ease after September, “once the fiscal consolidation impact is fully absorbed by the economy and has fully reflected on the prices of goods and services, in addition to the end of back-to-school season.” We have a detailed breakdown on the report in our The Market Yesterday section below or you can view the full report here (pdf).

Real estate taxes are again in the news after the Tax Authority issued a booklet outlining the conditions for exemption from the tax, Ahram Online reports. Property worth less than EGP 2 mn will be eligible for exemption from paying a real estate tax. Homes whose net annual income from rent is less than EGP 24,000 will also be eligible for exemption. Those found guilty of evading taxes will pay a EGP 1,000-5,000 fine on top of the tax. The booklet was issued as the ministry postponed the deadline for paying real estate taxes to 15 October from 15 August.

Yemeni President Abdrabbuh Mansur Hadi is meeting President Abdel Fattah El Sisi in Cairo today, Yemen’s media minister said, Youm7 reports. Hadi will also meet with several other Egyptian officials during his two-day visit, including Parliament Speaker Ali Abdel Aal.

Higher Education Minister Khaled Abdel Ghaffar is set to sign an agreement with China’s ambassador to Egypt Song Aiguo today, according to an emailed Investment Ministry statement (pdf). The details of the agreement were not disclosed.

The biggest story of the day for emerging markets continues to be the Turkish lira’s slow and agonizing death alone in the psych ward with no one visiting or sending flowers. We go in-depth on how the crisis could prove beneficial for Egypt and the impact on EMs further below in the Speed Round. But first, a look at the latest updates on the crisis.

A placebo effect appeared to take shape on Sunday, with the lira firming up to TRY 6.86 to the USD after falling to an all-time low of TRY 7.24, Reuters report.

The placebo: Turkey’s Finance Minister said that the government will announce a series of comprehensive economic policies to counter the downslide that would impact everything from banks to SMEs.

Why it won’t work #1: The minister echoed none other than his his father-in-law President Recep Tayyip Erdogan’s nationalist rhetoric that this was economic war, which will only serve to dig themselves even further in the mess.

Why it won’t work #2: Erratic economic and monetary policies by the Erdogan government have played as much of a hand in this as the political mess leading to the US tariffs, with the TRY being among the weakest currencies at the heart of the EM zombie apocalypse. Furthermore, the Erdogan administration seems paralyzed by the politics and has stood by and watched their economy meltdown. As investors urge the central bank to take action, policy makers fear that any rise in interest rates would be offset by another round of US sanctions, Bloomberg notes.

KSA fund looking to enter Tesla buyout: In other global business news, the Saudi Kingdom’s Public Investment Fund is exploring how it can be involved in the potential transaction, according to people with knowledge of the fund’s plans tell Bloomberg. The fund recently built a stake just shy of 5% in Tesla. The move comes as Tesla founder Elon Musk moves forward plans to take the company private despite concerns by the board, skepticism by short sellers, and lawsuits from investors.

Expect Mo Salah to feature heavily in the local and foreign press lately as the Premier League kicks off this week. The Liverpool striker started the season strong, scoring the first goal in Liverpool’s 4-0 victory of West Ham.

(Some of us here are very unhappy about the 2-0 defeat of Arsenal by Man City, but it could have been worse).

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