CBE to keep interest rate on hold in December
Emerging markets were affected by an exit wave of foreign investments in government debt instruments during the second quarter of 2018 as the US dollar rose, raising fears from the economies of these markets, especially after the crises of Turkey and Argentina.
Foreign investments in treasury bills (T-bills) recorded LE 210.21 billion ($11.71 billion) by the end of October, compared to LE 234.52 billion ($13.06 billion) by the end of September. CBE revealed that foreign investments in T-bills in local currency declined for the seventh month in a row, losing around $1.4 billion in October, to reach its lowest levels since June 2017.
As a result of the crisis that hit the emerging markets, the outflows of foreign investments in T-bills reached around $9.8 billion during the period of April to October 2018, as the investments hit LE 380.3 billion ($21.5 billion) in March.
CAIRO - 28 November 2018: Foreign investments in treasury bills (T-bills) recorded LE 210.21 billion ($11.71 billion) by the end of October, compared to LE 234.52 billion ($13.06 billion) by the end of September, according to data from the Central Bank of Egypt (CBE).
Egypt targets average interest rates on the government’s debt instrument reaching 14.7 percent in the current budget, compared to an expected average of 18.5 percent in 2017/2018 budget.
During 2018, the Ministry of Finance cancelled four auctions of treasury bonds after investors asked to raise interest rates, as “the required return rates were not within logical limits and did not reflect the good economic and financial performance or the improvement of Egypt’s credit rating.”
By keeping the rates unchanged during this meeting, it will be the sixth time in 2018 to keep the rates unchanged, as CBE kept interest rates on hold in November for the fifth time this year, setting the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.
During the meetings of August, June and May, MPC also kept the interest rates unchanged after lowering them twice earlier this year by 1 percent each time.
CAIRO - 15 November 2018: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) kept interest rates on hold on Thursday, Nov. 15 for the fifth time this year, meeting the expectations of experts and investment banks. MPC set the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.
Research Associations and Investment Banks
Capital Economics expected CBE to keep interest rates unchanged in December’s meeting, inflation to decline, and the easing cycle to be resumed in 2019, reviewing the Egyptian economic indicators during the third quarter of 2018, describing it by “economy appears to have lost momentum in Q3.”
The report said that industrial production rose slowly 2.6 percent on a year-on-year basis and that headline inflation declined to 15.7 percent (YOY) in November, from 17.7 percent (YoY) in October, attributing the fall of inflation to the ease of food inflation.
“But core price pressures are weak,” it read.
Capital Economics anticipated headline inflation to fall further, and that the easing cycle is likely to be resumed in early 2019.
CAIRO - 18 December 2018: Capital Economics issued a report expecting Egypt to have another reduction of its currency. The report noted that state-owned banks will no longer be able to support the Egyptian pound with policymakers appearing to hear calls of the International Monetary Fund (IMF) to change the exchange rate regime.
Investment Bank Beltone and Pharos Holding for Financial Investment agreed with Capital Economics to have the interest rate on hold during December.
Beltone noted that keeping the rates unchanged comes in line with the CBE’s vision to absorb the inflationary pressure to hit an average of 16 percent of inflation rate during the fourth quarter of 2018, recording the maximum targeted point.
Beltone also anticipated the return of treasury bonds to stabilize at rates exceeding 19 percent, which will save the attractiveness of investment in fixed income instruments among tightening monetary policies in the emerging markets.
As per Pharos, Head of the Research Department at the Company, Radwa al-Suweifi, said that inflation figures have returned to normal track, supporting Pharos’ vision to stabilize rates at the Monetary Policy Committee's meeting in Dec.
Also, HC Securities & Investment forecasted that Monetary Policy Committee (MPC) will keep rates unchanged in the fourth quarter of 2018, with anticipations that inflation will hit 14.8 percent from September to December.
“We expect the annual inflation rate to hit an average of 14.8 percent over September–December,” Equity Analyst – Macro & Banking Sector at HC, Monette Doss added.
The Central Agency for Public Mobilization and Statistics (CAPMAS) previously announced that the annual inflation rate hit 15.6 percent in November 2018, compared to 26.7 percent in the same month of 2017.
On a monthly basis, the rate decreased 0.7 percent, compared to October.
Regarding core inflation, CBE said that Egypt’s annual core inflation rate dipped to 7.94 percent in November 2018 from 8.86 percent in October 2018, according to a report.
On a monthly basis, core inflation recorded 8.86 percent in November, compared to 8.55 percent in October.
Core inflation discounts or strips out certain categories that are considered as more volatile.
Generally, Egypt targets an inflation rate of 13 percent in its fiscal year 2018/2019 budget.
CAIRO - 10 December 2018: Egypt's annual consumer price inflation slipped to 15.6 percent in November 2018, compared to 26.7 percent in the same month of 2017 that rose due to the flotation of the Egyptian currency, state-statistics body said Wednesday, Oct. 10.
Meanwhile, Egypt delayed listing some shares of state-owned companies on the Egyptian Exchange, as it should have listed about 4.5 percent of Eastern Company in October.
The government attributed the delay to the global market volatility, noting that if the shares were floated, it would have failed to be covered at proper valuation.
In 2016, Egypt announced the launch of the government’s IPO program to offer shares over three to five years in several state-owned companies in fields such as petroleum, services, chemicals and real estate.
The state’s IPO program comes in light of the economic reform program adopted by Egypt and is conducted under the supervision of the Ministry of Investment.
It targets to offer 15-30 percent of stakes of some state-owned companies on the stock exchange (EGX) to increase the funding to Egyptian companies, maximize the benefit from state assets, and to attract local and foreign capital flows to Egypt.