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Wednesday, 29 August 2018

Higher FX reserves, decelerating inflation to maintain EGP’s stability through 2018

Higher FX reserves, decelerating inflation to see EGP stable through the end of the year? The EGP is unlikely to see any major fluctuations through the remainder of 2018 and potentially into 1H2019, Beltone Financial’s Director of Macro and Strategy Alia Mamdouh tells Bloomberg TV. Why? Look no further than record-high FX reserves and the narrowing inflation differential between Egypt and the US’ headline inflation rate, she said. Mamdouh took note of improvements in the supply side of foreign currency on the back of rebounding tourism, which has led to a healthier balance of payments and current account.

Interest rates are also likely to remain stable for the time being, particularly as emerging markets have been raising their rates to offset turbulent market conditions. Mamdouh doesn’t expect any cuts until 1Q2019, when we might see a 100 bps reduction.

External borrowing is still going to weigh on the economy: The government has a USD 5 bn bond issuance penciled in for sometime this fiscal year, but is looking to shift towards relying more on long-term debt, Mamdouh stressed. Finance Minister Mohamed Maait had previously told us his ministry will not begin considering a foreign currency-denominated bond issuance for another two months, at which time market conditions will be an important factor.

You can catch the full interview here (runtime: 3:38).

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