Beltone Financial and HC Securities and Investment have expected interest rates to be kept unchanged by the Central Bank of Egypt (CBE) on Thursday. The CBE's monetary policy committee (MPC) is to hold its fifth regular meeting this year to discuss the fate of the basic interest rate, which is considered the most important indicator of the direction of interest rates in the Egyptian market in the short term. In its meeting held on 28 June 2018, MPC kept rates unchanged at 16.75% for deposits, 17/75% for lending, 17.25% for main operations and 17.25% for credits and discounts. According to the research department of Beltone Financial, the committee is expected to decide to keep the interest rates at the same level on Thursday. “We expect the annual rate of inflation in June to reach 14.4%, which will continue through the end of 2018. This is still within the CBE's target of 13% ±3%,” Beltone said, adding, “meanwhile, returns stabilized at above 18%, making them attractive for investors among other emerging markets.” Beltone noted that annual rates of inflation fell in July to 13.5%, from 14.4% in June, compared to estimates of 13.7%. They explained that this decline was driven by easing fuel price hikes impact, which took place in the middle of July. This also curbed the inflation rate increase in transportation to 40.5% in July, compared to 55.1% in June. The food commodities inflation also fell to 9.6% against 10.1% in June, as global prices fell. “The monthly inflation rate rose by 2.4% compared to 3.5% in June, in line with our estimate of 2.6%,” Beltone said. It attributed this monthly rise to higher prices in the alcohol and cigarette sector, where a price increase was imposed on cigarettes on 12 July.
Beltone expected the monthly inflation rate to rise in August, affected by the housing and utilities sector, which represents 18.4% of the index, given the increase in average gas prices announced in August. “We confirm our expectations of continued pace of inflation increase in the third quarter of 2018, due to the seasonal factors of Islamic holidays and summer vacations, but to a lesser degree due to pressure on disposable income,” Belton said. Meanwhile, HC Securities & Investment assured that July's headline inflation figure came in higher than their expectation of 1.5% on high monthly food and beverage inflation of 2.1% (compared with 1.7% in June), contributing to 1.15% of the total monthly inflation figures (compared with 0.94% in June). Chief Economist at HC Sara Saada, said that they believe the MPC will likely keep interest rates unchanged at its upcoming meeting, expecting monthly inflation to start normalizing in August to 1% on the phasing out of first and second round effects of fuel, electricity, and tax reforms, resulting in a nearly stable yearly inflation in August. "We believe the local drivers of price inflation will stabilize in Q4 2018, after which we may witness further monetary policy easing, if exogenous factors including international oil prices, exchange rate, and emerging market yields are favourable,” she added. “Although the fuel subsidy reform was implemented in June, which typically affects the food and beverage inflation figure, food and beverage price inflation in July was higher than the June figure. Other major contributors that were largely priced were housing and utilities, with prices rising 5.2% month-over-month following a 14.6% increase in the prices of electricity, natural gas, and other fuels products, contributing to 0.56% of the total monthly inflation figure. This was in addition to alcoholic beverages and cigarette prices rising 7.2% m-o-m after cigarette prices increased 7.6% m-o-m on cigarette tax reforms, contributing to 0.34% of total monthly inflation, according to Saada. HC pointed that yearly headline inflation decelerated to 13.5% in July from 14.4% in the previous month, with monthly prices increasing 2.4% from 3.5% in June, based on data published by the Central Agency for Public Mobilization and Statistics (CAPMAS). Annual core inflation also decelerated to 8.54% in July from 10.91% in the previous month, with monthly core inflation decelerating to 0.58% from 1.62% in June, according to the data posted on the CBE's website. Captions/Quotes: Domestic engines of price inflation will stabilize in Q4 2018, then likely to see easing of monetary policy
