Egypt: CBE to stay put in June – Standard Chartered

Bilal Khan, Senior Economist at Standard Chartered, suggests that they now expect the Central Bank of Egypt (CBE) to hold its policy rate, the overnight deposit rate, at 16.75% at its next MPC meeting on 28 June after they had previously expected a 100bps cut.

Key Quotes

“Given that this will be the CBE’s last meeting in FY18, we raise our end-FY18 policy rate forecast to 16.75% (15.75% prior).”

“Planned subsidy cuts for FY19 (year beginning July 2018) are likely to lead to a m/m acceleration in inflation.”

“We raise our average CPI inflation forecasts for FY18 to 21.6% (21.1% previously), FY19 to 14.8% (11.6%), and FY20 to 9.10% (8.10%) to account for higher cost-push inflation in Egypt.”

“In addition to exogenous cost drivers, we think the CBE will be concerned about excess domestic liquidity.”

“Egypt’s narrowing interest rate differential with the US (as the Fed hikes further); the recent pressure on emerging-market countries in the global financial markets; and a potentially adverse impact on the stock of portfolio investment in Egypt’s local-currency government debt market are likely to be additional concerns for the CBE. As such, we now see the CBE adopting an even more cautious approach to easing and forecast the overnight deposit rate at 15.75% by end-FY19 (from 15.25% prior).”