巴黎银行-新兴市场-宏观策略-埃及预计2019年底前将降息300个基点-20190809-8页_871kb

Egypt – Looming 300bp Cut by End-2019 Summary

Core Content

This document provides an economic and monetary policy outlook for Egypt, highlighting the potential for a series of interest rate cuts by the Central Bank of Egypt (CBE) in the second half of 2019. It outlines the current inflationary environment, the reasons behind the expected easing of monetary policy, and the broader implications for the Egyptian economy and its financial markets.

Key Messages

• Inflation Deceleration: Egypt's inflation rate surprised to the downside for a second consecutive month, dropping to 8.7% y/y in July from 9.4% y/y in June, suggesting the start of a disinflationary trend.
• Monetary Policy Adjustments: The CBE is expected to cut interest rates by 100bp on 22 August, with two more cuts of 100bp each in September and November.
• Supply-Side Improvements: Government efforts to increase food supplies have contributed to a decline in food price inflation to 9.0% y/y in July from 10.4% y/y in June.
• Transport Inflation: Transport inflation increased due to fuel subsidy cuts, reaching 8.7% y/y in July, but low international oil prices helped prevent further compounding of price pressures.
• Urban Inflation: Urban inflation rose by 1.8% m/m in July, well below market expectations, despite fuel price increases in early July.
• Soft Demand Pressure: Historical demand pressure remains soft due to the erosion of household purchasing power since the 2016 currency flotation.

Main Viewpoints

• Monetary Easing Resumes: The easing cycle is expected to resume in August, with the CBE likely to act earlier than previously anticipated due to the positive impact of supply-side measures.
• Global Support for EM Policy Easing: The global monetary environment supports further monetary easing in Egypt. Lower core rates in developed economies and easier financial conditions contribute to this trend.
• Attractive Yields: Egypt's 10-year sovereign debt real yields remain relatively attractive compared to other emerging markets, as seen in Fig. 3, which suggests that a 100bp cut in August would not detract from the market appeal of Egyptian debt.
• IMF Deal and Reforms: The IMF agreement and ongoing policy reforms are expected to maintain positive market sentiment towards Egyptian debt.

Key Information

• Rate Cut Timeline:
  • 22 August: First 100bp cut.
  • September: Second 100bp cut.
  • November: Third 100bp cut.
  • Total: A 300bp cut by end-2019 is expected.
• Inflation Drivers:
  • Food prices are expected to continue declining due to improved supply.
  • Fuel prices have had a mixed impact, with subsidy cuts increasing transport inflation, but low oil prices mitigating further pressure.
• Market Conditions:
  • EMFX is influenced by CNY depreciation, but local rates are more sensitive to core rates.
  • Portfolio inflows into EM are expected to remain stable.
• Policy Context:
  • The CBE aims to ease domestic credit conditions and support public debt service.
  • The base effect will become less supportive in December, when the CBE holds its final meeting of the year.

Supporting Figures and Data

• Fig. 1: Illustrates the resumption of monetary easing in August.
• Fig. 2: Highlights the overriding influence of food price deceleration on inflation.
• Fig. 3: Compares Egypt’s real yields with those of other emerging markets, showing relative attractiveness.

Disclaimer and Legal Information

• This document is non-independent research and is intended for marketing purposes.
• It is not investment research and is not subject to MiFID II independence requirements.
• It may contain hypothetical or back-tested performance data.
• It does not constitute a prospectus or public offering.
• Confidentiality: The information is provided confidentially and not for distribution without prior written consent.
• Conflicts of Interest: BNPP may have financial interests in the securities or entities mentioned, and conflicts of interest may exist.
• Legal Disclosures: The document includes important disclosures for options, ETFs, and convertible securities, including regulatory and jurisdictional limitations.

Conclusion

The CBE is poised to implement a series of rate cuts in the second half of 2019, driven by disinflationary trends, improved supply conditions, and global monetary easing. These measures aim to support economic growth and manage public debt obligations, while maintaining market attractiveness through competitive real yields and ongoing reforms. The global context remains supportive, and the timing of the cuts is influenced by both domestic and international factors.