Egypt’s annual headline inflation decelerated to 5.3% in February compared to 7.2% in January, HC Securities & Investment has reported.
Meanwhile, a report published by the Central Agency for Public Mobilization and Statistics showed no increase in monthly inflation in February, while January saw 0.7% increase.
Monette Doss, economist and banking analyst at HC Securities & Investment, said, “Despite the decline in the inflation figure in February, we believe that inflationary pressures could resume over the coming months due to stocking up of staple and pharmaceutical products following the announcement of the curfew in Egypt, relatively higher demand during the month of Ramadan, and possible supply shortages resulting from prolonged periods of lockdown. We believe monthly inflation could average c1% over the rest of 2020e to record an average of 6.4% over the first half (1H) of the year, backed by a favourable base effect, and to reach a peak of 11.45% year-over-year in December. We accordingly expect the Central Bank of Egypt (CBE) to maintain rates unchanged in its upcoming meeting.”
She added, “Local public banks maintained interest on their 3-year certificates of deposit (CDs) at an elevated 12-12.25% and introduced 1-year 15% CDs, while the Commercial International Bank increased interest on its 3-year CDs by 2-2.5% to reach 12-12.25%.”
Doss also said HC perceives these elevated rates as “necessary to discourage dollarisation and bank-runs,” whilst also reducing the potential positive effects of the recent 300 basis points (bps) rate cut on private sector growth.
“A similar trend is observed in the treasury bills (T-Bills) auctions where 6-month T-bills decreased by 76bps only to 13.55% currently, from 14.31% prior to the March rate cut which reflects high risk levels, in our view,” Doss said. “Egypt’s 5-year dollar-dominated CDs increased to above 612bps currently, from 298bps at the end of February and significantly higher than Turkey’s 5-year CDs of 469bps. Currently, risk levels discourage further rate cuts in our view.”
On 16 March, the CBE’s Monetary Policy Committee held an unscheduled meeting where it cut interest rates by 300bps after keeping them unchanged in January and February.