HC Securities & Investment expects the Egyptian Central bank to increase interest rates by 200 bps based on Egypt’s current situation.
The April inflation figure came in higher than our estimate of 12.3% and Reuters’ median consensus estimate of 11.8%, driven by a 48.8% y-o-y increase in fruit and vegetable prices, while bread and grains increased by 28.5% y-o-y, according to CBE and Central Agency for Public Mobilization and Statistics (CAPMAS) data
Head of macro and financials at HC, Monette Doss commented that ‘ several factors led food inflation in Egypt , including seasonal demand during the month of Ramadan, c18% EGP devaluation since 21 March, and increasing global prices following the Russia-Ukraine war.
Even though food prices could relatively cool off in the coming month as demand neutralizes after the month of Ramadan, the food prices are expected to be the main trigger for an average inflation estimate of 14.0% over the remaining of 2022e due to hampered purchasing power resulting from lower employment levels (as revealed by Egypt’s April PMI at 46.9) and directing most demand to food staples.
It is worth mentioning that, in a special meeting on 21 March, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to increase key policy rates by 100 bps after keeping it unchanged for ten consecutive meetings and following the Federal Reserve Bank (Fed) decision in March to increase the interest rate by 25 bps.
Egypt’s annual headline inflation accelerated to13.1% from 10.5% in the previous month, with monthly inflation increasing 3.3% m-o-m, compared to an increase of 2.2% m-o-m in March, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).
