Egypt’s central bank seen holding key interest rates

Egyptians walk in front of the Egyptian Central Bank in Cairo. (AP)
Updated 11 July 2019
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Egypt’s central bank seen holding key interest rates

  • Egypt's economy had been struggling to recover from the turmoil that followed its 2011 uprising

CAIRO: Egypt's central bank is likely to maintain interest rates at their current level on Thursday, a Reuters poll showed, as analysts foresaw a spike in inflation after a hike in fuel prices last week.
Of 15 economists surveyed by Reuters, 14 said the bank's monetary policy committee was unlikely to change its overnight rates, with deposits at 15.75% and lending at 16.75%.
"Higher domestic fuel and electricity prices in July will raise inflationary pressures further in H2," said Nadene Johnson, an economist at NKC African Economics.
"Nonetheless, there appears to be limited demand-side inflationary pressure because of low real earnings, which could mitigate some of the expected supply-side inflation."
Scaling back fuel subsidies that have strained the budget for decades was a key plank of a three-year, $12 billion reform package signed with the International Monetary Fund in 2016.
Egypt's economy had been struggling to recover from the turmoil that followed its 2011 uprising.
Other measures agreed under the loan include a sharp devaluation of the currency and the introduction of a value-added tax.
"Inflation edged higher in May and upcoming reform measures (fuel/energy subsidy cuts) will likely keep the CBE on a holding pattern over the next few months," Bryan Plamondon, IHS Markit global economics director focusing on the Middle East and North Africa, said before the fuel price hikes on Friday.
The poll was conducted from June 30 to July 8.
Headline inflation accelerated to 14.1% in May from 13% in April. It had fallen in April from 14.2% in March.
Core inflation, which strips out volatile items such as food, fell in May to 7.8% from 8.1% the previous month.
"Inflation will spike MoM (month-on-month) in July-September, but the annual rate will be supported by the base effect, capping the reading at 14-15%," said Radwa El-Swaify, head of research at Pharos Securities Brokerage.
"In light of the delay in energy subsidy cuts, and the fact that June has passed without any movement in energy prices, we expect June inflation to record c. 1.0-1.5% MoM and 11.2-11.8% YoY, which will be a significant drop in inflation."
The government had told the IMF it would remove subsidies entirely from most fuel products by June 15 after increasing fuel prices steadily over the past four years.
It did not explain the delay, but austerity measures are politically sensitive and have dented the popularity of President Abdel Fattah al-Sisi.
The central bank kept interest rates steady at its last two meetings, in May and March, after a surprise 100 basis points cut in February.
Several analysts said the CBE was likely to wait until the fourth quarter of 2019 to cut rates, given the impact of the fuel subsidy cuts and concerns over global trade.
"We now expect the next window to cut the bank rates is several months away," said Angus Blair, chairman of business and economic forecasting think-tank Signet.
NKC's Johnson said: "The dovish stance by the US Fed supports further rate cuts by the CBE in the coming year."


Egypt expects several share offerings by end of year

Updated 15 September 2019
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Egypt expects several share offerings by end of year

  • One small company worth about 50 million Egyptian pounds was also expected to offer shares on the Nile Stock Exchange

CAIRO: Egypt expects two state companies and one private pharmaceuticals firm worth more than $61.3 million, or one billion Egyptian pounds, to make share offerings by the end of the year, an official at the Financial Regulatory Authority said on Sunday.
One small company worth about 50 million Egyptian pounds was also expected to offer shares on the Nile Stock Exchange, which specializes in small and medium sized enterprises, said Sayed Abdel Fadeel, head of the authority’s corporate finance department. He did not name the companies.
Egypt promised to sell minority stakes in several state companies in late 2018 but postponed the offerings following emerging market turbulence.