Beltone Financial expects 100bps interest rates cut during May

CAIRO – 13 May 2019: Beltone Financial reiterated its expectations that the Central bank of Egypt (CBE) would cut the interest rates during May meeting.

Beltone clarified in a report that “there is another room for another 100bps which was pending confirmation on eased inflation with April reading.”

It elaborated that the cut decision in February was earlier than expected, noting that this earlier cut aimed at boosting investors’ confidence by sending a strong message of confidence in the current monetary policy and the path of the local currency, reducing the fundamental economic component in the decision making process and opening room for a move in rates ahead of the subsidies removal.

“Favorable global conditions, with the ease in monetary tightening, will continue to provide the buffer for the CBE to resume its monetary easing,” the report anticipated.

“Meanwhile, the most likely scenario for us will remain a 100bps cut in rates by the end of the year, accounting for the expected inflationary repercussions of the wider implementation of the fuel indexation mechanism,” it added.

According to the report, Egypt still provides a decent carry trade, supported by the recent credit rating upgrade and the strength of the local currency.

The report noted that the rise in foreign holdings of government T-bills to $16.9 billion in April 2019, bridging outflows in the second half of 2018 and returning back to July 2018 levels, confirms Beltone’s view.

During March meeting, the Monetary Policy Committee of the Central Bank of Egypt (CBE) kept the overnight deposit rate and the overnight lending rate at 15.75 percent and 16.75 percent, respectively.

As per inflation, April's annual headline inflation rate in Egypt came below Beltone’s expectations of 13.9 percent, marking 13 percent, compared to 14.2 percent in March.

“This was driven by a 13 percent increase in food prices versus a rise of 15 percent in March, which we attribute to a slowdown in fruits and vegetables prices as well as poultry,” the report attributed. "On the other hand, the recreation and culture segment saw an increase of 7 percent in April, up from 4.6 percent a month earlier, reflecting the Easter holiday spending."

It added that monthly inflation increased 0.5 percent, compared to 0.8 percent in March, below Beltone’s expectations of 1.3 percent.

The Central Agency for Public Mobilization and Statistics (CAPMAS) announced earlier that Egypt’s annual consumer price inflation fell to 12.5 percent in April 2019, compared to 12.9 percent in April 2018.

Inflation surged in Egypt since the floatation of the Egyptian pound in November 2016, reaching a record high level in July due to energy subsidy cuts that have been gradually easing since July.

Egypt targets an inflation rate of 13 percent in its fiscal year 2018/2019 budget.