Deutsche Bank sees potential rate cut in March

05 Feb 2019

Cairo: The Central Bank of Egypt is likely to keep interest rates on hold throughout 1Q2019, but a “100 bps rate cut cannot be ruled out” in March, Deutsche Bank said in a research note out on Friday.

“Given the upside risks to inflation stemming from further subsidy cuts in Q2-19 and the adjustment to [the] customs exchange rate for luxury and nonessential goods, the CBE is more likely to start easing by the end of Q2-2019.”

The CBE’s monetary policy committee will next meet to review rates on Thursday, 14 February.

DB sees Egypt missing its fiscal deficit targets this year due to the state budget assuming “unrealistic average oil price and yield levels,” despite global crude prices currently hovering at USD 60/bbl, which is below the budget’s projections of USD 67/bbl.

Demand for Egyptian t-bills has picked up, the bank notes, saying that it maintains a bullish outlook on Egypt’s local assets. “However, we note that it is important for the CBE to walk a fine-line between cutting rates to support public credit growth while not front-loading the easing cycle to reduce the risk-reward for foreign investors when increasing exposure to Egyptian local products.”

Deutsche notes that “the FY-19 budget projects that the ?scal de?cit will narrow to 8.4% of GDP (or EGP 438.8bn) compared to 9.8% in FY-18 (this may be subject to upward revision) with a primary balance of 2% of GDP (compared to 0.2% in the previous FY).

We believe the government will not be able to meet its FY 2018-19 ?scal de?cit target.

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