HC Remains Confident in the Sustainability of the Improvement in the Macroeconomic Indicators

December 24th, 2017 – In a recent report, HC remains confident in the sustainability of the improvement in the macroeconomic indicators and believes in an imminent start of an easing cycle. However, with the relatively contained drawbacks of the high interest rate environment, as growth continues to accelerate and treasury yields (cost of borrowing) drop on the back of an easing cycle expectations, they believe the CBE can maintain its conservative stance and keep interest rates on hold at its upcoming meeting and start the easing cycle in February. They therefore expect the MPC to keep interest rates on hold at its upcoming meeting.

Sara Saada, Chief Economist in HC declared that despite the stabilization in the monthly inflation figures, the MPC decided to keep interest rates on hold at its previous meeting. This signals to us a very conservative stance on the imminent start of the easing cycle.

she added, since the last MPC meeting, the EGP/USD rate witnessed some volatility, reaching EGP17.85/USD after almost 3 months of stability at around EGP17.65/USD. Attribute the movement to seasonality effects rather than weakening fundamentals as 1Q17/18 showed a strong reported balance of payments with the current account recording an annualized deficit of USD6.56bn, narrower than the annualized deficit of USD19.13bn a year earlier and an actual deficit of USD15.58bn in FY16/17. Additionally, 1Q17/18 foreign direct investments almost fully covered the current account deficit, implying strong external position fundamentals.

As per Saada, Moreover, the Zohr gas field’s initial production, which started in mid-December, will contribute in savings of up to USD60m per month, with the savings set to increase as production increases, according to the minister of petroleum. On the real economy front, Egypt’s real GDP growth accelerated to 5.2% y-o-y in 1Q17/18 from 4.9% y-o-y in the previous quarter and 3.8% y-o-y a year earlier.