Analysts at Standard Chartered note that the CBE cut its policy rate, the overnight deposit rate, by 100bps to 16.75% on 29 March.

Key Quotes

“The move was in line with our (and consensus) expectations. This is the CBE’s second cut since the start of the easing cycle initiated in February. Headline inflation has continued to decline rapidly, and we expect it to fall further. Nevertheless, we think room for the CBE to cut much more is limited by a combination of domestic and global factors.”

“First, although inflation has declined (in part due to base effects), further subsidy cuts are likely in the budget for FY19 (year beginning July 2018). This should put upward pressure on m/m inflation, even as the favourable base effect fades in Q4-2018.”

“Second, Egypt stands alone in the MENAP region in diverging from Federal Reserve policy. Although Egypt is cutting from a significantly higher level, policy makers will likely wait to assess any impact on over USD 20bn of foreign portfolio investment in the country’s local currency (LCY) government debt market.”

“We think the statement supports our cautious view on further easing. Although we expect only a further 100bps cut before the end of FY18 (there are two meetings before then: 17 May and 28 June), on balance, we think risks are skewed towards the CBE adopting caution over further cuts. It may well choose to remain on hold going into FY19 to see the actual impact of subsidy cuts on consumer prices.”

 

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