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Prime Holding forecasts Egypt's inflation to continue downward trend to 5.3%-5.5%in September Research firm predicts further 50 bps rate cuts in the next MPC meeting in 14 November
Egypt's overall increase in urban headline prices will witness a further decline for the fourth straight month in September, Prime Holding said in a Tuesday research note. The research firm expects annual urban headline inflation to range between 5.3%-5.5% in September against 7.5% in August. Prime attributes the decline in the inflation rate to the significant base year effect, EGP strengthening, stable food prices, and receding demand pressures despite the back to school season, which will have more significant impact on October readings. In month-over-month terms the note forecasts urban inflation to drop and range between 0.65%-0.5%. The projected fall in monthly inflation came to reflect the continuing drop in the inflation of some food items, including poultry and meat, while expected rise in fruit prices offset such impact. Furthermore, the small decline in fuel prices would have limited impact of government downward revision on inflation, the firm expects. Last week the government cut an average of 3.8% of petrol prices and Mazut, on the back of a lower average crude prices and a stronger EGP in the third quarter of 2019. This decision was the result of the first quarterly revision after the wide implementation of automatic fuel pricing mechanisms to include all fuel product, except fuel oil used in electricity generation and bakeries. The revised prices will last until the end of the year. The reasoning behind Prime Holding's view include the small magnitude of the cut and the fact that it excluded price of diesel, which is the main fuel used in transportation. However, the note still foresees the current strong disinflation trajectory to last until November and to register its lowest reading in October, as it is expected to reach 4.2%, before accelerating in December on the backdrop of the fading base year effect. Accordingly, Prime Holding foresees further rate cuts in the next MPC meeting in 14 November. "We now foresee the possibility of overnight deposit rates to end this year at 12.75% with expected 50 bps in November's meeting. The CBE now will have two inflation readings -September and October- to observe and monitor the impact of the last rate cuts on inflation before November's meeting," the note reads. Furthermore, despite an expectation that inflation will creep up in December on the back of the faded base year effect, the research firm said that, it would remain within the CBE's inflation target of 9.0% (±3%), which is entirely supportive of further cuts, especially within the context of the global monetary easing environment.
