Beltone Investment Bank said there was a chance of another 100 basis point (bps) rate cut at the next monetary policy committee meeting on 23 May, which was waiting for a calm reading of inflation in April.
“In our view, the recent cut in interest rates ahead of February’s forecast, aimed at boosting investor confidence, by sending a strong message of confidence in current monetary policy, as well as confidence in the local currency course,” the bank said in a research note on Sunday. “This will reduce the economic component in the decision-making process, and allow for the movement of interest rates before the removal of subsidies.”
It pointed out that the favourable global conditions represented by the calm implementation of deflationary monetary policies will continue to support the resumption of the expansionary monetary policy by the Central Bank of Egypt (CBE). However, the most likely scenario is to cut interest rates by 100 bps by the end of the year, amid the repercussions of inflationary pressure as the automated fuel pricing mechanism is applied.
On the other hand, Beltone believes that Egypt continues to provide an attractive investment opportunity, supported by raising Egypt’s latest credit rating and the appreciation of the pound. It pointed out that the increase in foreign investments in treasury bills to $16.9bn in April 2019 which bridged the gap resulting from leaving investments in the second half of 2018, returning to their levels in July 2018, which confirms its vision.
The bank said that annual inflation in April 2019 rose 13% from 14.2% in March 2019, slightly below its forecast of 13.9%, supported by a 13% rise in food prices compared to a 15% increase in March, which was attributed to the slowdown in the prices of fruits, vegetables, and poultry.
On the other hand, the entertainment and culture sector saw a 7% rise in April, up from 4.6% last month as a result of spending the Sham Al Naseem (Easter) holidays.
Monthly inflation rose by 0.5% from 0.8% in March, lower than Beltone’s forecast of 1.3%.
On Thursday, the CBE revealed a drop in core inflation to 8.1% year-over-year (y-o-y) in April, from 8.9% in March.
The monthly core inflation rate was 0.4% in April from 0.5% in March.
The Central Agency for Public Mobilization and Statistics (CAPMAS) also revealed annual consumer price inflation in cities fell to 13% y-o-y in April, from 14.2% in March.
The general consumer price index for the republic of Egypt was at 308.1 points for the month of April 2019, registering a rise of 0.4%, compared to March 2019.
The CAPMAS said the reasons for this rise were the increase in the prices of the fruit group by 12.9%, the fish and seafood group by 5.6%, the cereal and bread group by 0.9%, the garment group by 2.3%, and the organised tourism group by 4.5%.