HC Securities & Investment expects the Central Bank of Egypt (CBE) to keep interest rates unchanged at its next July 11, 2019 Monetary Policy Committee (MPC) meeting. According to Sara Saada, head of macro and financials at HC Research, yearly inflation figures will be largely influenced by favourable base effect in the coming few months from June to October 2019. That said, she expects June month-over-month inflation to remain close to about 1%, while year-over-year inflation will decelerate to about 11%, which is within the CBE's target inflation of 9% (±3%) by the fourth quarter of 2020. Saada said that the application of new electricity prices on July 1 and petroleum products on July 5 will raise monthly inflation in June and August with the first and second cycle of inflation. Egypt increased the prices of petroleum products by 16% to 22% on July 5, compared to average fuel price increases of 35% to 51% last fiscal year. Egypt also announced electricity price hikes on July 1, leading to an average monthly inflation range of 2% to 3% for July and August, which Saada believes will influence the CBE's MPC upcoming decision. It is worth mentioning that at its last meeting on May 23, 2019, the CBE's MPC kept policy rates unchanged for the second consecutive meeting, after reducing rates by 100 basis points in February 2019. Egypt's annual headline inflation accelerated to 14.1% in May from 13.0% in in the previous month, with monthly inflation reflecting 1.1% monthly price increase, compared to 0.5% in the previous month, according to data published by the CBE. The country's annual core inflation marginally decelerated to 7.8% in May from 8.1% in the previous month, with the monthly core consumer price index (CPI) increasing 1.2% compared with a 0.4% increase in April, the CBE data revealed.
