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."


China's aviation regulator raised concerns with Boeing on 737 MAX design changes

Updated 12 December 2019

China's aviation regulator raised concerns with Boeing on 737 MAX design changes

  • China is reviewing the airworthiness of the plane
  • China was first country to ground plane in March

BEIJING: China’s aviation regulator raised “important concerns” with Boeing Co. on the reliability and security of design changes to the grounded 737 MAX, it said on Thursday, but declined to comment on when the plane might fly again in China.
China is reviewing the airworthiness of the plane based on proposed changes to software and flight control systems according to a bilateral agreement with the United States, Civil Aviation Administration of China (CAAC) spokesman Liu Luxu told reporters at a monthly briefing.
He reiterated that for the plane to resume flights in China, it needed to be re-certified, pilots needed comprehensive and effective training to restore confidence in the model and the causes of two crashes that killed 346 people needed to be investigated with effective measures put in place to prevent another one.
China was the first country to ground the 737 MAX after the second crash in Ethiopia in March and had set up a task force to review design changes to the aircraft that Boeing had submitted.
The US Federal Aviation Administration (FAA) will not allow the 737 MAX to resume flying before the end of 2019, its chief, Steve Dickson, said on Wednesday.
Once the FAA approves the reintroduction into service, the 737 MAX can operate in the United States, but individual regulators could keep the planes grounded in other countries until they complete their own reviews.
“Due to the trade war, the jury is still out on when China would reintroduce the aircraft,” said Rob Morris, Global Head of Consultancy at Ascend by Cirium.
Chinese airlines had 97 737 MAX jets in operation before the global grounding, the most of any country, according to Cirium Fleets Analyzer.