15% inflation + two more rate hikes by July? That’s the prognosis given by Doug Bitcon, head of credit strategies at Dubai-based investment bank Rasmala, who told Bloomberg TV (watch, runtime: 4:25) yesterday that rising food prices are a “big issue” for Egypt as we look to simultaneouly shore up our external position and secure new supplies of wheat. “We’re going to see inflation top out at around 15%,” he said, adding that the EGP devaluation is going to compound upward pressures on prices.

Reminder #1– Annual urban inflation rose to 10.5% in March — its highest level in almost three years — as spillover effects from the conflict in Ukraine continued to hit the Egyptian economy. The headline rate was driven by food prices, which accelerated at their quickest rate since October 2018, reaching 19.8% from 17.6% in February. Analysts differ on when inflation will likely peak, with CI Capital forecasting a peak near 12.5% in April, while Al Ahly Pharos expects price hikes to continue into the summer, peaking near 12% in August.

Reminder #2- Russia and Ukraine before the war accounted for more than 80% of our wheat supplies. We have lots more on that in the Commodities section, above.

More rate hikes coming: “We expect at least another 1% increase in interest rates in May, and another 1% in July,” Bitcon said, adding that Egypt’s all-important carry trade has been “very [lucrative]” in the past, and that there still is hope. “If you’re thinking to convert into EGP at the higher exchange rate, you don't have that exchange risk and you get that positive carry,” he noted.

The Central Bank of Egypt raised rates by 100 bps in March and simultaneously allowed the EGP to fall against the USD, a move Bitcon said was designed to get the “portfolio flows flowing back in.” FX reserves fell by USD 4 bn last month as the central bank moved to cover what it called “substantial foreign investor outflows” and purchase strategic goods. The CBE will next meet to review interest rates on 19 May.