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Thursday, 23 June 2022

THIS MORNING: It’s interest rate day

Happy Thursday, ladies and gentlemen. Thankfully, yesterday’s pacy newsflow has slowed a little as we roll on into the weekend — giving us a chance to unpack some of the big stories that came in this week.

THE BIG STORY here at home: We’re delving deeper into Finance Minister Mohamed Maait’s comments at the Qatar Economic Forum in Doha. Maait is advocating for a switch in focus from hot money to FDI, and hints that we could be in line for a four-year facility from the IMF.

Legislation is a bit of a theme again today, too. We’re gauging the reaction of the real estate sector to new regulations that will bring developers under a more watchful eye.

It’s also interest rate day. The Central Bank of Egypt (CBE) will hold its latest policy meeting today against the backdrop of rising inflation and an acceleration of the biggest global tightening cycle in decades. Coming on the back of worsening inflation data and the Federal Reserve’s huge 75-bps rate hike last week, emerging economies across the world will come under increasing pressure to act as liquidity tightens and borrowing costs rise. S&P Global just yesterday brought the problems into focus, publishing a list of countries in Europe and emerging markets ⁠— Egypt among them ⁠— which could face credit stress should rates rise by 300 bps.

But gauging what policymakers will do is proving harder this time around: A narrow majority of analysts we surveyed last week expect the CBE to keep things steady this month while it assesses the impact of recent rate hikes on inflation in June and July. The central bank has already raised rates by 300 bps since March in response to inflation and external pressures

A wider poll conducted by Reuters this week has the CBE raising interest rates. Its survey of 17 analysts forecasts a 50 bps increase in the benchmark rate to 11.75% and a 25 bps hike in the lending rate to 12.50%. “In a context of hawkish Fed policy and pressure on Egyptian external liquidity, a significant rise in CBE rate is needed for a recovery in portfolio inflows,” said Pascal Devaux, senior economist at BNP Paribas.

Are we saying goodbye to carry traders? Most crucial to the wider conversation on rates, is the government signaling that it will rely more on FDI and less on carry traders to boost FX reserves. The latest to stress this point was Finance Minister Mohamed Maait. We have more on his statements in our Economy section below.

FACT CHECK- Maait did not say at the forum that Egypt is facing a food crisis, as some local media outlets have reported, according to a Finance Ministry statement, which said the minister’s statements on the global food crisis had been taken out of context and stressed that our reserves of key commodities are sufficient to last for six months.


Yet more love from the KSA? The Saudi Fund for Development (SFD) wants more cooperation with us on renewable energy and food security projects, fund head Sultan Abdulrahman Al-Marshad told International Cooperation Minister Rania Al Mashat, according to a ministry statement. The SFD will visit Egypt in September to tour projects it is helping finance, he said.

SMART POLICY- Madbouly cabinet expands “golden licenses”: The Madbouly cabinet approved yesterday amendments to the Investment Act’s executive regulations that would expand access to “golden licenses” to limited liability companies, according to a statement. These licenses are meant to expedite approvals for projects — particularly for key sustainable development, energy, and infrastructure projects.

WATCH THIS SPACE- Upping exports: The private sector’s Egyptian Exporters Association (Expolink) will provide the government with a draft document on how to boost exports in the coming weeks, state run MENA agency reported. The state has an ambitious plan to raise exports to USD 100 bn a year by 2025, and the document would set out ways in which the government can improve the business climate to help companies export more.

THE BIG STORY ABROAD Even the Fed is being forced to say the R word: Federal Reserve chief Jay Powell has admitted that the US central bank’s stringent tightening policy could trigger a recession. “We are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential” to curb decades-high inflation, Powell told Congress, adding that a recession was “certainly a possibility,” according to the Wall Street Journal.

Has the window closed on a soft landing? Powell was tight-lipped on whether the Fed would be able to pull off the “soft landing” it had been hoping for — bringing inflation back to its 2% target without triggering an economic downturn. “The events of the last few months around the world have made it more difficult for us to achieve what we want,” he said. Powell’s testimony also got ink from The Financial Times and Reuters.

Analysts are falling over themselves to predict a recession. Deutsche Bank and Citigroup are the latest banks to forecast a high recession risk amid the hawkish global turn and war in Ukraine, Bloomberg reports. “At least I would say we have 50% likelihood of a recession globally,” Deutsche Bank’s CEO Christian Sewing said yesterday, while Citigroup analysts also calling it a 50/50 chance. “The experience of history indicates that disinflation often carries meaningful costs for growth ” they said in a note.

UP NEXT WEEK-

Get ready for a big Competition Act showdown: The House’s Economic Committee has spent the week discussing proposed amendments to the Competition Act that are proving controversial. Officials from the central bank, the Financial Regulatory Authority (FRA), the EGX, and the Egyptian Competition Authority (ECA) haven’t been able to iron out differences of opinion on the proposed amendments in two separate meetings this week, according to committee head Ahmed Samir. The committee will bring them back around the table for a final meeting this Sunday to try and force a consensus, he said.

The amendments, which have been up in the air since last year, would give greater powers to the Egyptian Competition Authority (ECA) to regulate mergers and acquisitions and prevent monopolistic practices in the market. They would give the ECA the power to approve or block M&As. The authority’s role is currently limited to raising red flags, but only after a transaction is concluded.

The sticking points: Officials can’t agree on how much notice businesses would have to give the ECA of M&A transactions, and the kind of fees it would impose on them, Samir said, without giving any further details.

What’s next: The committee is pushing for the House to pass the amendments before it adjourns for summer recess, Samir said.

Also happening next week: A group of Saudi real estate developers are set to visit Egypt next week to kick the tires on potential fresh investments here, particularly in new cities, Al Mal reports, citing Egyptian Businessmen Association Vice Chairman Fathallah Fawzi. Representatives will meet Housing Minister Assem El Gazzar and Public Enterprises Minister Hesham Tawfik, and will be touring New Alamein City and the western North Coast, as well as El Galala.

CIRCLE YOUR CALENDAR-

The Big 5 Construct Egypt (pdf) construction industry exhibition runs from 25-27 June at the Egypt International Exhibition Center (EIEC) in Cairo.

Amcham AGM next week: Our friends over at Amcham will hold their annual general meeting on Monday 27 June at the St. Regis Cairo Hotel. Finance Minister Mohamed Maait will address the gathering.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

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