Macro Analysis /
Egypt

MPC Watch: Inflation supports likely rate cut today

    Al Ahly Pharos Securities Brokerage
    11 July 2019

    Single digit June inflation changes the game

    On the local front, there's high demand from foreign investors for EGP treasury instruments, the consequent influx of US$ into the Egyptian banking system, and the resulting 5% strength of the EGP in Q1 19. At the same time, we project a very supportive inflation outlook between July-November – we expect inflation between 8.0%-9.0% yoy. All things considered, we believe that the environment is now ripe for an interest rate cut. We forecast a 1% rate cut, possibly at the meeting today. 

    The outlook for the rest of the year has now changed, as the lift in fuel subsidy was postponed to July from June, allowing for the base effect to support inflation into the single digit bracket. We therefore adjusted our forecasts, which allowed for considerable room for a rate cut without affecting foreign investments in treasury instruments. 

    The monthly total inflation rate was -1.0% in June, after growing by 1.0% in May, while the annual inflation rate was 8.9%, down from 13.2% in May. 

    In conclusion, domestic inflation rate dynamics and foreign ownership of treasury instruments support a rate cut today (11 July) by the Central Bank of Egypt.