Back to the complete issue
Sunday, 19 May 2019

Enterprise poll: Central Bank of Egypt to maintain rates despite drop in April inflation

SURVEY- CBE to leave key interest rates on hold this Thursday: The Central Bank of Egypt (CBE) will likely leave key interest rates on hold when its Monetary Policy Committee meets this Thursday, according to all 12 economists polled by Enterprise. Respondents cited the likely impact on inflation of upcoming cuts to subsidies for fuel and electricity. “We think the CBE will refrain from taking any action now that we’re getting closer to the liberalization of fuel prices this summer,” EFG Hermes’ Mohamed Abu Basha said. The CBE cut its overnight deposit and lending rates by 100 bps in February to 15.75% and 16.75%, but left them on hold at its last meeting in March.

Indicators are good: “April's inflation was good, but not to the extent of a cut ahead of the next round of subsidy cuts. Unemployment continues to drop and GDP growth is holding up well, so I don't think the CBE will view monetary action as needed. The only thing in favor of a cut is the stronger EGP,” Renaissance Capital Head of MENA Research Ahmed Hafez said. Annual headline inflation fell to 13% in April from 14.2% in March, potentially as a result of discounted food items the government released in the market ahead of Ramadan. Unemployment fell to 8.1% in 1Q2019, down from 8.9% in 4Q2018, the state statistics agency said earlier this month.

Look for inflation to rise in May and June on the back of Ramadan spending and planned subsidy cuts, analysts said. “We expect monthly inflation to rise in May as a result of higher consumer demand during Ramadan. Moreover, we estimate fuel prices to rise 15%-25% in June-July, compared to average fuel price increases of 31%-42% for octane and diesel in FY2017-2018, resulting in higher monthly inflation in June and July,” HC’s Sara Saada said.

So, when will the central bank go back to rate cuts? Look for easing to resume toward the end of this year, economists predicted. “I still expect the CBE will resume easing in Q4,” said CI Capital’s Hany Farahat.

Could we see a cut this week anyway? Only if you squint the right way: “There is room,” said Beltone’s Alia Mamdouh. “But the most likely scenario remains a 100 bps cut in rates by the end of the year, accounting for the expected inflationary repercussions of the wider implementation of the fuel indexation mechanism.”

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.