Good news for Egyptian debt: Other emerging markets have lowered interest rates — and more should follow. Russia, Chile and India have lowered their benchmark rates last week as emerging markets struggle with lower than expected growth and a turbulent macro climate. The hint from central bankers in other EMs is that they too will move to cut rates, Davidson Santana writes for Bloomberg in a piece that is surely good news for the continued competitiveness of Egyptian debt.

Who else is looking to make cuts? South Korea, Brazil and Turkey all seen as taking a move towards interest rate cuts in the short-term. In the medium-term, Santana expects Mexico and South Africa are likely to follow suit.

Which central bank isn’t likely to make rate cuts? Ours. Before the release last week of May inflation figures — which showed annual headline inflation rising unexpectedly to 14.1% from 13% in April — analysts we polled saw our central bank leaving interest rates on hold until nearer the end of the year. The May inflation figures and the inflationary impact of energy subsidy cuts due by July (to say nothing of turbulence in global markets) have analysts saying it is highly unlikely that the CBE’s Monetary Policy Committee will move to cut interest rates when it next meets on Thursday, 11 July.

That will likely make it another lost year for capex spending: With business paying credit-card levels of interest on facilities to fund new investment, don’t expect a rush to borrow anytime soon. Nine companies we spoke with last week tell us that rates should be in the 10-13% range (vs c. 20% on corporate borrowing now) before we can see sustained capex and consumer demand pick up. Most are waiting for rates to go down (and / or for factory utilization to pick up on the back of rising consumer demand) before they borrow.

EM analysts are looking to the Fed this Tuesday and Wednesday: As emerging markets look to stimulate their economies with rate cuts, their eyes will turn to the US Federal Open Market Committee, which will meet this Tuesday and Wednesday to review interest rates. The US Fed’s decision this week will have a critical impact on how carry traders see local EM currencies.

Which would mean what for the EGP? The carry trade has played a part in the appreciation seen by the EGP this year. A rate cut by the Fed could offset any strengthening of the USD against local currencies. This plays into projections by analysts we spoke with last week that see a gradual depreciation in the EGP towards the end of the year, depending on seasonal changes and inflows.

We’ll know more on inflows when the CBE releases the balance of payments report for 3Q2018-19, which we expect to later this month, especially as CAPMAS has already released trade figures for the quarter last week.