Egypt’s central bank seen holding key interest rates

Egyptians walk in front of the Egyptian Central Bank in Cairo. (AP)
Updated 11 July 2019

Egypt’s central bank seen holding key interest rates

  • Egypt's economy had been struggling to recover from the turmoil that followed its 2011 uprising

CAIRO: Egypt's central bank is likely to maintain interest rates at their current level on Thursday, a Reuters poll showed, as analysts foresaw a spike in inflation after a hike in fuel prices last week.
Of 15 economists surveyed by Reuters, 14 said the bank's monetary policy committee was unlikely to change its overnight rates, with deposits at 15.75% and lending at 16.75%.
"Higher domestic fuel and electricity prices in July will raise inflationary pressures further in H2," said Nadene Johnson, an economist at NKC African Economics.
"Nonetheless, there appears to be limited demand-side inflationary pressure because of low real earnings, which could mitigate some of the expected supply-side inflation."
Scaling back fuel subsidies that have strained the budget for decades was a key plank of a three-year, $12 billion reform package signed with the International Monetary Fund in 2016.
Egypt's economy had been struggling to recover from the turmoil that followed its 2011 uprising.
Other measures agreed under the loan include a sharp devaluation of the currency and the introduction of a value-added tax.
"Inflation edged higher in May and upcoming reform measures (fuel/energy subsidy cuts) will likely keep the CBE on a holding pattern over the next few months," Bryan Plamondon, IHS Markit global economics director focusing on the Middle East and North Africa, said before the fuel price hikes on Friday.
The poll was conducted from June 30 to July 8.
Headline inflation accelerated to 14.1% in May from 13% in April. It had fallen in April from 14.2% in March.
Core inflation, which strips out volatile items such as food, fell in May to 7.8% from 8.1% the previous month.
"Inflation will spike MoM (month-on-month) in July-September, but the annual rate will be supported by the base effect, capping the reading at 14-15%," said Radwa El-Swaify, head of research at Pharos Securities Brokerage.
"In light of the delay in energy subsidy cuts, and the fact that June has passed without any movement in energy prices, we expect June inflation to record c. 1.0-1.5% MoM and 11.2-11.8% YoY, which will be a significant drop in inflation."
The government had told the IMF it would remove subsidies entirely from most fuel products by June 15 after increasing fuel prices steadily over the past four years.
It did not explain the delay, but austerity measures are politically sensitive and have dented the popularity of President Abdel Fattah al-Sisi.
The central bank kept interest rates steady at its last two meetings, in May and March, after a surprise 100 basis points cut in February.
Several analysts said the CBE was likely to wait until the fourth quarter of 2019 to cut rates, given the impact of the fuel subsidy cuts and concerns over global trade.
"We now expect the next window to cut the bank rates is several months away," said Angus Blair, chairman of business and economic forecasting think-tank Signet.
NKC's Johnson said: "The dovish stance by the US Fed supports further rate cuts by the CBE in the coming year."

Economists fear a US recession in 2021

Updated 19 August 2019

Economists fear a US recession in 2021

  • Trump’s higher budget deficits ‘might dampen the economy’

WASHINGTON: A number of US business economists appear sufficiently concerned about the risks of some of President Donald Trump’s economic policies that they expect a recession in the US by the end of 2021.

Thirty-four percent of economists surveyed by the National Association for Business Economics, in a report being released Monday, said they believe a slowing economy will tip into recession in 2021. 

That’s up from 25 percent in a survey taken in February. Only 2 percent of those polled expect a recession to begin this year, while 38 percent predict that it will occur in 2020.

Trump, however, has dismissed concerns about a recession, offering an optimistic outlook for the economy after last week’s steep drop in the financial markets and saying on Sunday, “I don’t think we’re having a recession.” A strong economy is key to the Republican president’s 2020 reelection prospects.

The economists have previously expressed concern that Trump’s tariffs and higher budget deficits could eventually dampen the economy.

The Trump administration has imposed tariffs on goods from many key US trading partners, from China and Europe to Mexico and Canada. 

Officials maintain that the tariffs, which are taxes on imports, will help the administration gain more favorable terms of trade. But US trading partners have simply retaliated with tariffs of their own.

Trade between the US and China, the two biggest global economies, has plunged. Trump decided last Wednesday to postpone until Dec. 15 tariffs on about 60 percent of an additional $300 billion of Chinese imports, granting a reprieve from a planned move that would have extended duties to nearly everything the US buys from China.

The financial markets last week signaled the possibility of a US recession, adding to concerns over the ongoing trade tensions and word from Britain and Germany that their economies are shrinking.

The economists surveyed by the NABE were skeptical about prospects for success of the latest round of US-China trade negotiations. Only 5 percent predicted that a comprehensive trade deal would result, 64 percent suggested a superficial agreement was possible and nearly 25 percent expected nothing to be agreed upon by the two countries.

The 226 respondents, who work mainly for corporations and trade associations, were surveyed between July 14 and Aug. 1. That was before the White House announced 10 percent tariffs on the additional $300 billion of Chinese imports, the Chinese currency dipped below the seven-yuan-to-$1 level for the first time in 11 years and the Trump administration formally labeled China a currency manipulator.

As a whole, the business economists’ recent responses have represented a rebuke of the Trump administration’s overall approach to the economy.

Still, for now, most economic signs appear solid. Employers are adding jobs at a steady pace, the unemployment rate remains near a 50-year low and consumers are optimistic. US retail sales figures out last Thursday showed that they jumped in July by the most in four months.