Beltone Financial investment bank reiterates its view that muted inflationary pressures coupled with the solid macro stance that will allow the continuation of the aggressive easing cycle with an expected 50-100 basis points (bps) cut in interest rates at the upcoming Monetary Policy Committee’s (MPC) meeting on November 14, and a total 300bps cuts in 2020.
A favourable base effect and EGP strength should continue to advocate benign annual inflation readings until the end of the year, keeping inflation rates with the Central Bank of Egypt’s (CBE) target zone of 9% (+/- 3%) by the end of 2020.
Moreover, Beltone analysts foresee inflation averaging 4.8% in the fourth quarter of 2019 (4Q19).
Other factors on their watch list that contribute to these inflation readings and interest rate trends include foreign fixed income inflows especially after the impact of rate cuts on yields. In addition to the performance of banks, the CBE’s net foreign assets (NFAs), and EGP stability within their expected range of EGP 16-17/USD.
Annual headline inflation saw a significant deceleration to 3.1% in October, perfectly in line with Beltone’s expectations and below the September reading of 4.8%, with 1% increase on a monthly basis.
The transportation segment saw an 8% year-over-year (YoY) and 0.4% month-on-month (MoM) drop, compared with 7% YoY rise in September, on the 4% average drop in selected fuel indexation mechanism. While the education segment saw the highest MoM increase of 22%, in line with the seasonality effects from the beginning of the new school season.