The Central Bank of Egypt's (CBE) Monetary Policy Committee (MPC) is expected to keep interest rates unchanged in its next meeting on 24 December, HC Securities & Investment said in a statement on Sunday. Inflation is forecast to accelerate to 6.1 percent year-on-year (YoY) and 0.2 percent month-on-month (MoM) in December due to the price hikes resulted from supply shocks of some vegetables, Head of Macro and Financials at HC, Monette Doss, noted. Nevertheless, it would still remain within the CBE's target of 9 percent plus or minus three percentage points for the fourth quarter (Q4) of 2020. In addition, unemployment rate declined to 7.3 percent in Q3-20 from 9.6 percent in the prior quarter, reflecting positively on consumer spending. "We also believe that the relative improvement in investor confidence together with monetary easing started to bear fruit as indicated by Egypt's Purchasing Manager Index (PMI) exceeding the 50 benchmark in September, October and November, coming in at 50.4, 51.4 and 50.9, respectively." Real interest rate on short-term deposits and loans is seen at about 2 percent and 4 percent, respectively, higher than their 12-year average of about -3 percent and 1 percent. Moreover, foreign inflows into Egyptian debt instruments are expected to retreat over the next months "due to possible diversion of funds towards recovering emerging markets' stocks this is beside possible outflows due to profit taking in December." Egypt offers high real after-tax yields among emerging markets with 3.03 percent, higher than Turkey's real yield of -1.60 percent. HC expects the CBE to reduce interest rates by 100 basis points (bps) in Q1-21 and hold rates unchanged in its next December meeting, In November, the CBE decided to cut the overnight deposit rate, the overnight lending rate, and the rate of the main operation by 0.5 percent to 8.25 percent, 9.25 percent, and 8.75 percent, respectively.
