The Central Bank of Egypt (CBE) said that as the recently implemented fiscal consolidation measures were anticipated. Moreover, he Monetary Policy Committee decided in its recent meetings that the existing policy rates remain appropriate, to align the inflation outlook with the targeted disinflation path, announced in May 2017. According to a recent report on monetary policy prepared by the CBE, the outlook for annual headline in-flow continues to record 13% (±3%) on average in the fourth quarter of 2018, and single digits after the temporary effect of fiscal supply shocks dissipates. The report noted that real GDP growth is expected to continue, benefiting from structural reform measures, while potential fiscal consolidation measures may temporarily slow down the recovery of private consumption. Net exports and investments are expected to continue complementing consumption as growth engines. Moreover, the overall fiscal deficit is budgeted to decline to 8.4% of the GDP in 2018/19, compared to an expected 9.8% in 2017/18, and 10.9% in 2016/17, and is targeted to continue decreasing thereafter. Meanwhile, the CBE stated that the primary fiscal balance is budgeted to record a surplus of 2.0% of the GDP in 2018/19, compared to an estimated surplus of 0.2% of the GDP in 2017/18, and a deficit of 1.8% of the GDP in 2016/17, with the aim of maintaining this surplus thereafter. The inflation outlook continues to accumulate the upwardly revised Brent crude oil prices, at $76.7 per barrel, during fiscal year (FY) 2018/19, which reflected the materialisation of an upside risk to the inflation outlook. The international food prices' forecast, relevant to Egypt's consumption basket, was upwardly revised primarily because of higher prices of wheat and sugar, as a result of bad weather conditions affecting production prospects for both crops. In addition to international commodities' price developments, risks from the external economy continue to include the pace of tightening financial conditions, as well as trade tensions, according to the CBE. Meanwhile, domestic risks surrounding the inflation outlook continue to include the timing and magnitude of potential fiscal consolidation measures, supply shocks, the evolution of inflation expectations, as well as demand-side pressures.
