Egypt: CBE to choose caution over cuts – Standard Chartered Bank

Bilal Khan, Senior Economist at Standard Chartered Bank, expects the Central Bank of Egypt’s (CBE’s) monetary policy committee to leave the policy (overnight deposit) rate at 12.25% at its 20 February meeting.

Key quotes:

“At the January meeting, when rates were kept on hold against the market consensus’ view of easing, the CBE highlighted signs of a revival in domestic demand, which was outpacing net exports as the primary growth driver (see Egypt – CBE’s hawkish hold). January CPI inflation then showed an uptick – although the y/y pick-up was marginal, inflation rose to 0.7% m/m after posting negative 0.2% m/m in December.”

“Our base case remains that despite a m/m uptick mainly due to food prices, CPI inflation is likely to remain within the CBE’s 9%+/-3ppt target for end-2020. We recently lowered our inflation forecast for FY20 (ending 30 June 2020). Even if m/m readings average 0.6% through April, CPI inflation is unlikely to print significantly higher than 6% on a y/y basis (see Egypt – Currency strength prevails, for now). Still, we think the CBE will await signs of a clear disinflation trend in the monthly readings before resuming easing. We expect it to cut rates next on 2 April (Figure 1). While we acknowledge the risk of a cut being brought forward to February, weaker global financial-market sentiment towards EM amid coronavirus concerns is likely to prompt CBE caution on resuming easing just yet.”