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Egypt's inflation is expected to continue rising as the country struggles through supply shortages due to pressure on foreign exchange reserves and import controls.
According to Heba Mounir, economist and financials analyst for HC Securities and Investments, Egypt's inflation is expected to continue rising by 2% month-on-month (MoM) and hit a record 36.6% year-on-year (YoY) for July.
In June, Egypt's YoY headline inflation rose to a record 35.7% from 32.7% in May, as the economic woes from repeated devaluations and higher food prices bit. The jump was primarily driven by food and beverages, whose prices had increased by 64.9% YoY.
Mounir said the import curbs along with an improvement in tourism numbers has led Egypt's overall balance of payment in the first quarter and second quarters of 2022-23 to record surpluses of $523 million and $75.6 million, respectively.
However, it reversed into a deficit of $317 million in Q3 due to around 17% QoQ lower exports due to the impact of a drop in natural gas and petroleum products prices and a 46% QoQ drop in the services balance surplus.
Mounir also expects the Monetary Policy Committee (MPC) of the Central Bank of Egypt to maintain interest rates unchanged at its upcoming meeting this week.
An interest rate hike to "attract portfolio inflows is unlikely in the upcoming MPC meeting until Egypt sorts out its USD liquidity shortage, which led inflation to soar and widened the Egypt-US inflation differential to 32.0% in 3Q23 from 29.2% in 2Q23," she said in a note on Tuesday.
However, Capital Economics said in a recent note that Egypt’s policymakers are expected to carry on with fiscal tightening policies.
Earlier forecasts by the London-based think tank had penciled in the hike in September. However, recent inflation figures might force monetary policymakers to raise interest rates sooner, the note said expecting the CBE to adopt the hikes as early as August.
Since March 2022, the Egyptian Pound has been devalued by nearly 50% because of the global economic shock caused by the Russian invasion of Ukraine. In December, the IMF approved a $3 billion Extended Fund Facility loan for the cash-strapped country to be disbursed over 46 months.
(Reporting by Brinda Darasha; editing by Seban Scaria)
