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Monetary Policy Report, March 2017 | Central Bank of Egypt 0

Central Bank of Egypt

Monetary Policy Report March 2017

Monetary Policy Committee

16


Central Bank of Egypt

This document is the first Monetary Policy Report published by the Central Bank of Egypt. Its

objective is to increase transparency regarding the assessment of initial economic conditions as

well as provide an outlook of expected future economic developments that underpin monetary

policy decision-making. The Central Bank of Egypt considers enhanced transparency and

communication with all stakeholders as an integral part of achieving its price stability mandate.

The Monetary Policy Report will be published four times a year.

This report was prepared by the staff of the Monetary Policy Sector and approved by the Monetary Policy Committee. Some of the data presented in the report are preliminary and subject to revisions. The cut-off date for the statistics included in this report is March 15, 2017.


Table of Content

THE INITIAL CONDITIONS……………………………………………………………………………………… PAGE 3

THE OUTLOOK………………………………………………………………………………………………….….. PAGE 19

MONETARY POLICY STANCE…………………………………………………………………………………. PAGE 20

APPENDIX: TABLES AND ABBREVIATIONS..……….………………………………………………..... PAGE 21


Figure 1 Headline and Core Inflation (in %, y/y, weights in parenthesis)

Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt.

Figure 2 Monthly Contribution to Headline Inflation (in %, m/m)


Figure 3 Diffusion Index: Headline Inflation by Number of Items that Experienced Price Changes (in %)


1. The Initial Conditions

a) Inflation has been mainly driven by cost -push pressures that are gradually receding.

Headline monthly inflation in February 2017 decelerated

to 2.6%, after averaging 4.0% over the previous three

months. The elevated monthly inflation rates, however,

led the annual rate to record 30.2% in February. Inflation

expectations stemming from a history of 10% inflation as

well as transitory cost-push factors reflecting side-effects

of the economic reform measures on November 3, 2016

represent the main reasons for the high inflation,

whereas inflationary pressures stemming from economic

activity remained limited. Inflation was further affected

by upward adjustments of regulated prices, higher

custom tariffs, supply shocks in certain commodities

notably rice and sugar, as well as the introduction of the

value added tax at a higher rate vis-à-vis the sales tax.

Moreover, seasonal effects impacted the prices of fresh

fruits and vegetables in February 2017.

Following the generalized price increase in November

2016 that affected more than half of the items in the CPI

basket, the share of the items that experienced price

increases narrowed gradually to register 19% in February

2017. In line with that, it is estimated that the impact of

the depreciation of the exchange rate during November

and December 2016 has been gradually declining.

February inflation supports the argument that most of

the impact of the transitory cost push effects is likely to

have materialized. It is worth highlighting that the pickup

of the monthly inflation rate in January 2017 following its

drop in December 2016 reflected regular seasonal

effects.

Core items continued to experience the largest price

increases, which led monthly core inflation rates to

record a higher average compared to headline inflation at

4.9% in the three month prior to its drop in February

2017 to 2.6%. Accordingly, annual core inflation rose to

33.1% in February. While the contribution of food prices

remained elevated between November 2016 and January

2017, the contribution of the prices of retail items and

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Headline CPI (100%)

Core CPI (74.4%)

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Regulated Items Fruits & Vegetables

Food Prices Retail Prices

Services

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Price increasesPrice decreasesNet


Figure 4 Tradable Goods and Egypt’s Nominal Effective Exchange Rate (in %, y/y)


Figure 5 Developments of International Commodity Prices (Index, 2005 = 100)

Source: International Monetary Fund.

services declined following their inch up in November.

Especially prices of red meat, poultry, fish, pulses, sugar,

wheat, maize as well as oil and fats were strongly

impacted by the exchange rate depreciation. In the

services sector, prices of cafes and restaurants, inland

transportation as well as health related services were the

main drivers. Retail items were especially impacted by

higher prices of medical products, vehicles and related

products, clothing and personal care products, as well as

household appliances and cleaning products.

Globally, there has been some firming of international

commodity prices affecting prices of tradable items in the

domestic CPI basket, which largely encompass food

items. International food prices using domestic CPI

weights rose by 17% (y/y) in February 2017, while

domestic core food prices rose by 45.4% (y/y). The higher

magnitude domestically is partly driven by the significant

exchange rate depreciation. Especially May (4.0% m/m),

November (6.4% m/m), December (7.0% m/m) and

January (8.1% m/m) witnessed the largest increases,

driven by the significant depreciation in the nominal

effective exchange rate (NEER) in March (9.5% m/m),

April (6.5% m/m), November (76.6% m/m) and December

(15.2% m/m).

After peaking in January 2017, prices of core food as well

as tradable items more generally registered in February

the lowest monthly increase since October 2016. In the

meantime, the monthly increase of prices of non-

tradable items has been gradually dropping since

December 2016, strengthening the argument that the

factors currently driving inflation are temporary in nature

and will diminish, supported by a tight monetary policy

stance.

b) The global environment supported weak – albeit strengthening – pressures on domestic prices, but challenges competitiveness due to adverse inflation differentials.

International commodity prices were on upward trend

between February 2016 and February 2017, driven by

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NEER (actual depreciation =increase, RHS)

Tradables (LHS)

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Food

Energy


Figure 6 Real GDP Growth in Advanced Economies (in %, y/y)

Source: Bloomberg.

Figure 7 Inflation in Advanced Economies (in %, y/y)

Source: Bloomberg.

Figure 8 Egypt’s Inflation Differential with its Main Trading Partners (in %, y/y)

Source: Bloomberg and Central Bank of Egypt calculations.

higher crude oil prices which rose significantly in

December 2016 following OPEC's meeting to coordinate

production cuts on November 30. Nevertheless, prices

were lower during the first nine months of 2016

compared to the same period a year earlier and the

annual increase began to take place since 2016 Q4.

Other than the mild firming of international commodity

prices, the global economic environment supported

weak, albeit strengthening pressures on domestic prices.

Low global inflation and subdued global growth, albeit

recovering, supported low cost-push and demand-pull

pressures on domestic prices, respectively, while the

synchronized recovery is setting the stage for monetary

policy normalization.

Despite lower annual real GDP growth in advanced

economies in 2016 compared to 2015, it came out slightly

better in 2016 Q4 compared to 2015 Q4. While the pace

of annual output growth in the UK and Japan increased, it

stabilized in the US and slowed down in the euro area. In

emerging economies, annual growth in 2016 was roughly

the same as in 2015, with somewhat better outturns in

2016 Q4 compared to 2015 Q4. During this period,

output growth in China was broadly the same, while that

of India improved.

After bottoming in September 2015, annual headline

inflation continued to recover in advanced economies

during the first months of 2017, hovering around the 2%-

mark in the case of the UK and the euro area, while

registering 2.7% in the US during February and 0.4% in

Japan during January. Meanwhile, annual headline

inflation in emerging economies has been generally on a

downward trend since November 2015, recording 0.8%

and 3.7% in China and India in February 2017,

respectively.

Egypt, however, has witnessed an upturn in annual

inflation since May 2016 that was further amplified by

the economic reform measures in November 2016. This

resulted in a higher inflation differential between Egypt

and its trading partners which impacted Egypt's

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Japan

United Kingdom

Euro Area

United States

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United States Euro area

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Figure 9 Trading Partner Currencies Against the USD (in %, y/y, increase is depreciation)

Source: Bloomberg and Central Bank of Egypt calculations.

Figure 10 Non-oil Trade Balance (in USD billion)

Source: Central Bank of Egypt.

Figure 11 Oil Trade Balance (in USD billion)

Source: Central Bank of Egypt and International Monetary Fund.

competitiveness adversely. Nevertheless, the adverse

impact was more than offset by the annual NEER

depreciation since 2016 Q2 and especially in 2016 Q4 and

2017 Q1 in light of the foreign exchange market

liberalization and the associated depreciation of the

Egyptian pound, which yielded a more competitive real

effective exchange rate (REER), despite the annual

depreciation of trading partner currencies vis-à-vis the

USD.

c) Balance of payments (BoP) dynamics exerted pressure on the Egyptian Pound and international reserves under the managed exchange rate regime, resulting in foreign exchange controls, the emergence of parallel markets, and continuous cost-push inflationary pressures. This strategy has proven unsustainable and led the CBE to liberalize the foreign exchange market on November 3, 2016, thereby tolerating only transitory inflationary pressures while gaining the benefits of external sustainability.

Despite the somewhat weaker annual economic growth

in advanced economies in 2016, the annual REER

depreciation that took place since 2016 Q2, along with

other trade-balancing measures, coincided with the

improvement of the non-oil goods trade deficit compared

to the respective quarters of the previous year. On

average, between 2016 Q2 and Q4, the upturn in exports

was the main contributor to the improvement in the non-

oil trade deficit, recording USD 3.8 billion, the highest

since June 2011. Furthermore, non-oil exports in 2016 Q4

alone recorded the highest annual improvement since

2008 Q1. Meanwhile, non-oil imports averaged USD 11.7

billion, flat compared to the same period a year ago.

Furthermore, after a notable improvement of the oil

trade deficit in the first three quarters of 2016, the

improvement narrowed substantially in 2016 Q4, partly

reflecting international oil price developments.

The annual improvement in the goods trade balance

between 2016 Q2 and Q4 corresponded with a

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Non-oil exports (LHS)

Non-oil imports (RHS)

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Oil imports (LHS)

Oil exports (LHS)

Brent oil price (USD/barrel, RHS)


Figure 12 Suez Canal Indicators (in %, y/y, unless otherwise stated)


Figure 13 Private Workers Remittances (in %, y/y)


Figure 14 Net Tourism Inflows and the Services Balance (in USD billion)


deterioration in the services balance1, with the

improvement of the former offsetting the latter’s

deterioration only during 2016 Q4. Generally,

developments in net tourism receipts have been the

leading driver of the outturn of services balance.

Nevertheless, despite the recovery in annual terms of net

tourism receipts during 2016 Q4 for the first time since

2015 Q2, the services balance continued to deteriorate in

the same quarter largely on the back of an annual

deterioration in other services payments (which include

transfers by international oil companies and payments of

international construction services). Taken together and

excluding net investment income, the sustained annual

deterioration since 2014 Q4 in net exports of goods and

non-factor services (NEGS) almost diminished between

2016 Q2 and Q4.

Meanwhile, remittances from Egyptians working abroad

rebounded substantially in 2016 Q4 to record USD 4.6

billion, the highest since 2015 Q2, after bottoming at USD

3.4 billion in 2016 Q3, the lowest since 2011 Q1. January

2017 data show a continued annual improvement.

Generally, the estimated decline of nominal GDP growth

of Gulf Cooperation Council (GCC) member countries in

2015 and 2016, as well as the emergence of parallel

foreign exchange markets during the previous exchange

rate regime, had adversely impacted private workers'

remittances.

Against this background, the annual deterioration in the

current account deficit narrowed substantially between

2016 Q2 and Q3, turning into an annual improvement in

2016 Q4. This marks the first annual improvement since

2014 Q1.

The capital and financial account recorded USD 24.2

billion between 2016 Q2 and Q4, an improvement by

USD 6.8 billion compared to a year earlier. While the

liquidation of commercial banks net foreign assets

lessened, medium and long-term loans as well as

suppliers credit rose to offset the decline in short-term

suppliers credit, net foreign investment in Egypt

1 Including the investment income balance.

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Suez Canal Tolls (USD billion, LHS)

Suez Canal net tonnage (RHS)

World trade volume of imports (RHS)

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Nominal GDP growth in the GCC(LHS)

Private remittances (RHS)

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Net tourism inflows (receipts minus payments)

Services balance


Figure 15 Net Foreign Direct and Foreign Portfolio Investments in Egypt (in USD billion)


Figure 16 Net External Borrowing of the Government and the Private Sector (in USD billion)


Figure 17 Fundamental BoP indicator 1/ (in % of GDP)

Source: Central Bank of Egypt. 1/ Calculated as the sum of FDIs, FPIs excluding net inflows in bonds, current account deficit excluding official transfers and short term suppliers credit (net).

increased, including both net foreign direct investment

(FDI) as well as portfolio investment in spite of the

repayment of the Qatari bond, and outflows from non-

bank foreign assets diminished.

Higher medium and long-term loans reflected the World

Bank's 1st tranche of the development finance loan (USD

1.0 billion) as well as the International Monetary Fund’s

(IMF) first tranche of the USD12 billion extended

arrangement under the extended fund facility (EFF, USD

2.7 billion).

The merits of the new exchange rate regime were further

reflected in higher net inflows into Egyptian T-Bills and

equities, increasing by a cumulative USD1.3 billion

between 2016 Q2 and Q4, most of which during Q4

where it registered the highest net inflows since 2010 Q3.

Leading indicators up to March 15th, 2017 show a further

net increase of portfolio inflows to Egyptian securities of

around USD 2.7 billion during 2017 Q12. Similarly, net FDI

inflows in Egypt recorded USD 5.3 billion between 2016

Q2 and Q4, improving by USD 1.0 billion compared to a

year earlier, most of which during Q4, where it registered

the highest annual increase in USD billions since 2015 Q1.

Under the managed exchange regime, foreign investment

excluding bonds as well as net short-term suppliers credit

have been generally unable to finance the current

account deficit excluding grants since 2010 Q4, resulting

in sustained fundamental deficits over most of the period

to date. Portfolio investment during that period were

hampered by the sum of the country risk premium as

well as the anticipated exchange rate depreciation, which

together have outweighed favorable interest rate

differentials. This led to drainage of net foreign assets by

commercial banks' and accumulation of liabilities by the

CBE to provide foreign exchange to the market while

minimizing the drop in gross international reserves, the

depreciation of the Egyptian pound as well as the

associated cost-push inflationary pressures.

On November 3, 2016, the CBE decided that this strategy

2 Using traded dates of portfolio inflows, which could differ from data releases using value dates.

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Direct Investment In Egypt (net)

Portfolio Investment in Egypt (net)

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Short term suppliers credit (net)

Medium term loans and suppliers credit(net)

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Global financial crisis

Liberalization of the exchange rate regime

Managed exchange rate regime


Figure 18 Labor Market Developments (in %, y/y)

Source: Central Agency for Public Mobilization and Statistics and Ministry of Planning.

Figure 19 Contribution to Real GDP Growth by Expenditure (in pp, at market prices)

Source: Ministry of Planning and Central Bank of Egypt.

Figure 20 Contribution to Real GDP Growth by Sector 1/ (in pp, at factor cost)

Source: Ministry of Planning and Central Bank of Egypt. 1/ G. Gov stands for general government.

was unsustainable and liberalized the foreign exchange

market. As a result, the fundamental deficit as defined

above reversed to a surplus in 2016 Q4, registering the

highest since 2010 Q3. Meanwhile, GIR were boosted by

external support, recording USD 26.6 billion in February

2017, the highest since June 2011, increasing the

coverage of expected imports of goods and non-factor

services in 2017/18.

d) Real Gross Domestic Product (GDP) growth weakened compared to 2014/15 and 2015/16.

Compared to the period between 2010/11 and 2013/14

where real GDP growth averaged 2.3%, output

strengthened between 2014/15 and 2015/16 to average

4.3%. The negative output gap prevalent since 2011 is

estimated to have narrowed during the previous two

fiscal years, while potential output growth is estimated to

have weakened. Moreover, the unemployment rate

dropped from a peak of 13.4% in 2013/14 Q2 to 12.5% in

2015/16 Q4, which coincided with a drop in average real

unit labor cost since 2015.

However, during 2016/17 Q1, annual real GDP growth

softened to 3.4% and the unemployment rate worsened

slightly to 12.6%. The slowdown in GDP growth during

2016/17 Q1 compared to the previous two fiscal years is

attributed to the drop in domestic absorption, while

outturns of net exports improved. The drop in domestic

absorption was due to the slowdown in the contribution

of consumption (both private and public), while that of

gross fixed investment remained broadly the same.

After being the main driver of growth historically,

supported by the recovery of real claims on the

household sector in 2014/15 and 2015/16, consumption

saw its relative contribution to growth dropping markedly

in 2015/16 Q4 and 2016/17 Q1. This coincided with an

annual drop in real average wages affecting consumer

purchasing power, and represents the beginning of the

rebalancing of the GDP growth structure.

Meanwhile, the contribution of gross fixed investment

remained broadly the same in 2016/17 Q1 compared to

-6%

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Employment (LHS)

Labour Force (LHS)

Real GDP (RHS)

3.8 2.0

1.4

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2

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Average of 2014/15 &2015/16

Sep-16

Net ExportsInvestmentConsumptionGDP growth (market price, RHS)

0.3 0.4 -0.3 -0.7

1.6 0.8

0.6

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0.5

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1.7

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0%

2%

4%

Average 2014/15 &2015/16

Sep-16

G. Gov. Suez Canal

Trade Services

Industry Agriculture

GDP growth (factor cost)


Figure 21 Tourism Developments (in %, y/y)

Source: Ministry of Planning and Central Bank of Egypt.

Figure 22 Gross Domestic Investment and Claims on the PBS (real growth in %, y/y)

Source: Ministry of Planning and Central Bank of Egypt estimates.

Figure 23 Composition of L/C Loans to PBS between July 2016 and January 2017* (in % of total PBS loans portfolio)

Source: Central Bank of Egypt. *Based on data sourced from 21 banks with 71% average market share of total loans to the PBS.

the previous two fiscal years. However, private

investment continued to recover and was offset by lower

public investment3. Public investment has taken the lead

in 2014/15 particularly due to the Suez Canal project.

During 2015/16 and 2016/17 Q1, the contribution of

private investment to growth has outpaced that of public

investment, after weakening considerably in 2014/15.

Meanwhile, growth in imports weakened while that of

exports increased in 2016/17 Q1 compared to the

previous two fiscal years, which lessened the negative

contribution of net exports of goods and non-factor

services to GDP growth, in line with nominal outturns in

Egypt's current account during the same period.

At the sectoral level, GDP at factor cost grew by 1.7% in

2016/17 Q1, slowing down from the average 2.8%

registered between 2014/15 and 2015/16. The slowdown

came mainly on the back of the services sector,

particularly tourism contributed significantly negatively.

The industrial sector also weakened, mainly due to the

manufacturing activity, particularly petroleum

manufacturing. Meanwhile, the contraction of the

extractions activity lessened, partly offsetting the

weakening manufacturing activity, as the contraction of

natural gas extractions narrowed markedly,

overcompensating for the deterioration in oil extractions.

In 2016/17 Q2, leading indicators have generally

improved, and preliminary figures for GDP growth at

market prices registered 3.8%. The negative annual

growth in the industrial production index and the PMI has

bottomed since June 2016 and December 2016,

respectively, and continued to recover thereafter,

suggesting continued improvement in GDP growth. This

coincided with a drop in unemployment rate to 12.4%

from 12.6% in the previous quarter.

Furthermore, annual growth of credit to the private

business sector has been elevated between July 2016 and

January 2017, particularly local currency credit, indicating

a potential continuation of private investment growth

3 Using the same deflator for private and public investment as gross fixed capital formation.

-100-80-60-40-20

020406080

100120

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Real growth tourism sector(GDP)Tourist arrrivals multiplied bytourist nights

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0%

5%

10%

15%

20%

25%

30%

-8%

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8%

10%

Jun

-03

Jun

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Jun

-05

Jun

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-08

Jun

-09

Jun

-10

Jun

-11

Jun

-12

Jun

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Jun

-14

Jun

-15

Jun

-16

Claims on PBS (LHS)

Gross domestic investment (RHS)

18.6

19.5

12.3

11.8

9.8

9.2

9.1

8.9

8.0

9.3

5.8

5.5

0 10 20 30 40 50 60 70 80 90 100

Jul.16

Jan.17

Wholesale Trade Non-oil logisticsConstruction Materials Food & BeverageOther Manufacturing ChemicalsConstruction Financial ServicesTourism Real EstateCommunication AgriculturePharmaceuticals Oil & GasElectronics & Industrial Goods TextilesAutomobiles Transportation


Figure 24 Share of total change in new L/C lending to PBS* (in %)

Source: Central Bank of Egypt. *Based on data sourced from 21 banks with 71% average market share of total loans to the PBS.

Figure 25 Excess Liquidity (in EGP billions)


Figure 26 Overnight Interbank Market (in %, unless otherwise stated)


that may offset weakening consumption growth, given

the historic relationship between real growth of credit to

the private business sector and gross domestic

investment.4 New lending to the private business sector

in local currency during the period between July 2016

and January 2017 was mainly provided to the industrial

sector this is followed by the trade sector, then the

services and agricultural sectors. Within the industrial

sector new lending was mainly afforded to the other

manufacturing, oil and gas, electrical industries and

electronics, food and beverage, automobiles and vehicles

sub-sectors. Within the services sector, new lending was

provided to the communication , non-oil logistics and

construction sub-sectors.

e) The recent tightening of monetary and financial conditions.

The liberalization of the foreign exchange market and the

associated depreciation and rise in inflation expectations

have loosened monetary conditions, risking underlying

inflationary pressures. The Monetary Policy Committee

(MPC) pre-acted by raising its main policy rates 600 basis

points in four out of eight meetings between December

27, 2015 and November 3, 2016, the latter being an

extraordinary meeting where policy rates were raised by

300 basis points at the day of the foreign exchange

market liberalization. The CBE further tightened

conditions via the introduction of flexible rate auctions

that have absorbed excess liquidity over maturities

greater than 7 days. Meanwhile, during the last two MPC

meetings that took place in December 2016 and February

2017, the committee decided to keep the main policy

rates unchanged.

Recently, monthly inflation developments show weak

evidence of unanchored inflation expectations given a

contained pass-through of the economic reform

measures that appears to be gradually fading.

Accordingly, the CBE's inflation forecast suggests the

recovery of negative real interest rates using forward

looking inflation, which along with the real exchange rate

4

Real claims on the private business sector are calculated as a function of two adjustments. Local currency claims were adjusted by the

gross domestic investment deflator. Foreign currency claims were adjusted by using June 2010 exchange rate.

26.8 19.1 16.1 15.8 8.1 -26.5

-27.5 -2.0 23.5 49.0 74.5 100.0 125.5

%

Wholesale Trade Other ManufacturingCommunication Oil & GasElectronics & Industrial Goods Non-oil logisticsFood & Beverage AutomobilesConstruction Materials ConstructionTextiles AgricultureChemicals PharmaceuticalsOil logistics TourismTransportation Real EstateFinancial Services

0

50

100

150

200

250

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Variable DepositsFixed-Rate DepositsStanding Facilities

0

5

10

11.50

13.50

15.50

17.50

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17

Th

ou

sa

nd

s

O/N volumes (EGP billion, RHS)O/N Deposit Policy RateO/N Lending Policy RateO/N Interbank RateMid-Corridor Policy Rate

Increase


Figure 27 Interest Rates (in, %)


Figure 28 Government's WACF 1/ (in, %)

Source: Central Bank of Egypt calculations. 1/ Adjusted for taxes. *Up to March 14, 2017.

Figure 29 Local Debt Coverage Ratios (in times (X))

Source: Central Bank of Egypt calculations. *Up to March 14, 2017.

appreciation during January and February 2017 is

expected to be tightening monetary conditions.

Tightening conditions have been reflected in money

markets, with the daily average spread between the

overnight interbank and the mid-corridor policy rate

gradually increasing since November 2016, turning

positive in February 2017 and approaching the corridor

ceiling at 15.75% during March. This was accompanied by

an upturn in money markets activity, with the average

daily volume of overnight interbank trading almost

doubling to EGP 3.8 billion during February and the first

two weeks of March 2017, compared to EGP 2.1 billion

between March 2014 and January 2017.

Tighter liquidity conditions were driven by the recent

increase in term-absorption of excess liquidity, that

occurred despite higher excess liquidity in absolute terms

which witnessed a decline only in the maintenance

period ending March 13. The liquidity absorbed greater

than 7 days averaged 81% of total excess liquidity during

the first 15 days of March 2017, compared to 72% and

69% in February 2017 and January 2017, respectively.

The overnight lending facility was tapped during the

period, however, by relatively weak magnitudes.

As of February 2017, lending rates came somewhat short

vis-à-vis the CBE's policy rate hike by 300 bps.

Commercial bank lending rates rose by 257 bps led by

higher retail lending rates, while tax-adjusted rates of

government securities rose by 213 bps, before inching up

another 55 bps during the first two weeks of March,

chiefly driven by higher overall T-bill yields during the

period. Hence, as of February 2017, the riskiness of

private sector borrowing rose vis-à-vis government

securities. Deposits rates, on the other hand, rose by 398

bps, reflecting the introduction of the 20% 1.5-year

saving certificates.

The somewhat weaker transmission of the CBE's hike to

the local debt market was mainly due to three factors.

First, higher demand for government securities reflected

by the increase of coverage ratio to 2.3x between

4

8

12

16

20

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b-1

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Oct-

10

Fe

b-1

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12

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b-1

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13

Fe

b-1

4Jun

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14

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16

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7

Mid-Corridor rateO/N interbank rateOverall deposit rateOverall lending rate

5

10

15

20

Jul-

14

Se

p-1

4

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4

Jan

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Ma

r-1

5

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y-1

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p-1

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y-1

6

Jul-

16

Se

p-1

6

Nov-1

6

Jan

-17

Ma

r-1

7*

WACF (net of tax)

T-Bonds yield

T-Bills yield

Jul-

14

Se

p-1

4

Nov-1

4

Jan

-15

Ma

r-1

5

Ma

y-1

5

Jul-

15

Se

p-1

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Nov-1

5

Jan

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r-1

6

Ma

y-1

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16

Se

p-1

6

Nov-1

6

Jan

-17

Ma

r-1

7*

0

1

2

3

4

5

6 Overall T-Bills Coverage Ratio

Overall T-Bonds Coverage Ratio


Figure 30 Evolution of Egypt International Bonds to UST: Mid-yield to Maturity 1/ (in bps)

Source: Bloomberg. 1/UST yields at constant maturity.

Figure 31 Egypt’s 5 Year Credit Default Swap (CDS) Spread (in levels, %)

Source: Bloomberg.

Figure 32 T-Bonds minus T-Bills 1/ (in bps, weighted average yield)

Source: Central Bank of Egypt calculations. 1/ Adjusted for taxes. *Up to March 14, 2017.

November 2016 and mid-March 2017 from 1.8x between

June 2016 and October 2016, supported by net foreign

portfolio inflows amounting USD 2.6 billion. Second, low

issuance levels, especially of T-bonds, countering the

impact of a slightly higher accepted-to-required ratio.

Third, increasing net external financing of the fiscal

deficit, which contained the need for bank and non-bank

financing. Net external financing rose on the back of the

successful issuance of USD 4.0 billion Egyptian Eurobonds

in addition to the disbursement IMF’s 1st tranche

equivalent to USD 2.7 billion.

Table 1: Government Securities (aop)

Yields (%) 1/

Auction details Oct-15 Mar-16 Oct-16 Dec-16 Jan-17 Feb-17 Mar-17*

Overall T-Bills 11.47 12.82 15.79 18.86 19.73 18.70 19.34

3 months 11.17 12.25 14.55 18.68 18.99 18.30 19.55

12 months 11.56 13.05 16.45 18.86 20.01 18.95 19.09

Overall T-Bonds 13.33 15.11 17.22 16.85 17.34 16.79 17.13

Coverage Ratio (x)


Overall T-Bills 2.11 1.83 1.49 1.95 2.23 2.81 2.32

3 months 2.42 2.22 2.09 1.92 2.18 1.91 1.41

12 months 2.00 1.67 1.20 2.64 2.57 3.66 3.45

Overall T-Bonds 2.35 1.74 1.45 4.16 2.90 2.65 2.42

Accepted ./. Required (x)


Overall T-Bills 1.00 1.00 0.95 1.00 1.05 1.03 1.11

3 months 1.00 1.00 1.04 1.00 1.04 1.02 0.99

12 months 1.00 1.00 0.92 1.00 1.05 1.06 1.33

Overall T-Bonds 1.00 0.96 1.04 1.14 1.03 1.13 1.11

Source: Central Bank of Egypt calculations.

1/ Yields are not adjusted for tax. */ March 14, 2017

It is worth noting that Egypt's sovereign credit risk

premium dropped post November's economic reform

measures, as reflected by the drop in Eurobonds’ yields in

the secondary market shortly after their issuance and the

substantial improvement witnessed in Egypt’s credit

default swap spreads.

Meanwhile, the spread between Egyptian T-Bonds and T-

Bills using primary market data, remained negative on a

tax adjusted basis during the first two weeks in March

2017, continuing to show an inverted yield curve that has

prevailed since December 2016. While the inverted yield

curve is affected by the substantial drop in issuance levels

of long-term debt, it is in line with the assumption that

inflationary pressures are of short-term nature.

300

350

400

450

500

550

26-J

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7

1-F

eb

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eb

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25-F

eb

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3-M

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15-M

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30-year spread10-year spread5-year spread

300320340360380400420440460480500

3-N

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Jul-

16

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r-1

7*


Figure 33 EGX 30 Index (Index, November 1, 2016 = 100)

Source: Egyptian Stock Exchange and Central bank of Egypt calculations.

Figure 34 Foreign Exchange Market Characteristics (in USD millions, unless otherwise stated)

Source: Egyptian Stock Exchange and Central Bank of Egypt calculations.

Table 3: Fiscal Deficit Developments in H1 2016/17 (in EGP billion)

H1 2015/16 H1 2016/17

GDP 2708.3 3246.5*

Overall deficit 172.5 174.6

Primary deficit 58.5 39.3

Total revenues 192.2 219.8

Tax revenues 137.9 154.6

Total expenditure 354.6 389.6

Interest payment 114.0 135.3

Source: Ministry of Finance. * Implied.

Furthermore, the efficiency of the foreign exchange

market improved as reflected by the return of interbank

market activity and the gradual narrowing of EGP/USD

bid-ask spreads, which recorded 75 bps on average

during the first 15 days of March 2017, after peaking in

November 2016 at 290 bps.

Equity prices as measured by the EGX30 index showed a

strong performance post the economic reform measures

in November 2016, registering a cumulative average

monthly increase by 46% as of mid-March 2017, and an

all-time high during January at the 13,436 level,

supported by foreign investments amounting to USD 690

million during the period. Recently, the stock market

performance has been somewhat impacted by news

regarding the introduction of stamp taxes.

Table 2: Foreign Portfolio Inflows (net, USD million) 1/

Period Stock Market T-bills T-bonds Total

Nov-16 * 166.8 403.3 -0.3 569.8

Dec-16 68.0 43.4 -0.8 110.6

Jan-17 93.3 477.4 5.1 575.7

Feb-17 47.8 1,180.1 - 1,227.9

Mar-17 ** 314.0 536.4 -0.02 850.3

Total 689.8 2,640.5 3.9 3,334.3 Source: Central Bank of Egypt calculations. 1/ Based on trading dates. * Since November 3, 2016. ** Until March 15, 2017.

f) The recent tightening of fiscal policy. Fiscal consolidation regained momentum in 2016/17 with

the primary as well as the overall fiscal deficit narrowing

during the first 8 months of 2016/17 to 1.4% and 6.7% of

GDP, compared to 2.7% and 8.2% of GDP a year earlier,

respectively, according to announcements by the MoF.

While the fiscal consolidation resulted in transitory cost-

push pressures on inflation, which is likely to adversely

impact growth over the short-term, it is expected to

improve debt sustainability thereby availing room for

countercyclical polices to resume its macroeconomic

stabilization objective.

During the first half of 2016/17, the consolidation was

largely driven by the expenditure side recording 12.0% of

90

100

110

120

130

140

150

160

170

1-N

ov-1

68

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9-N

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66

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3-D

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7-D

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n-1

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0-J

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1-J

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77

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-17

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eb

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20

40

60

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100

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300

400

Nov-1

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Dec-1

6

Jan

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Fe

b-1

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Ma

r-1

7*

Monthly Average Volumes (RHS)

EGP/USD Bid-Ask Spread (in bps, LHS)


Figure 35 Fiscal Sector Developments (in % of GDP)

Source: Ministry of Finance.

Table 4: CBE Overdraft Financing (in EGP billion)

2013/14 2014/15 2015/16 2016/17

O/D 1/ 134.5 249.1 203.1 0.0 CBE O/D legal

limit 30.6 37.0 42.4 47.1


1/ Outstanding Stock eop. 2016/17 stock was recorded as of

March 26 2017.

GDP compared to 13.1% of GDP a year earlier. In the

meantime, total revenues dropped to record 6.8% of GDP

in the same period compared to 7.1% a year earlier. Such

deterioration in revenues was largely driven by tax

revenues, which recorded 4.8% of GDP compared 5.1% in

the H1 2015/16. Nonetheless, the government’s

introduction of the value added tax system in September

2016 at a rate higher vis-à-vis the sales tax, higher

custom tariffs in November 2016 as well as higher

custom USD exchange rate compared to pre-November

2016 will likely support tax revenue metrics going

forward.

In the meantime, the structure of the deficit financing

shifted towards less bank financing (excluding revaluation

effects) and more net external financing. This was

supported by the agreement between the CBE and the

MoF to gradually phase out monetary financing of the

fiscal deficit as well as the improvement in Egypt’s

sovereign credit risk premium, particularly post the

economic reform measures and the IMF-EFF agreement.

Leading indicators show increased appetite for Egypt's T-

Bills from foreign portfolio investors, supporting non-

bank financing. In addition, external financing has further

increased by the issuance of the USD 4.0 billion

Eurobonds in late January 2017 as well as by the

disbursement of the 2nd tranche of the World Bank

development finance loan in March 2017 (USD 1.0

billion).

g) Monetary cross-check to the economic analysis5.

Broad money (M2) growth averaged 39.7% between

November 2016 and January 2017, which narrows to

16.3% after excluding the exchange rate revaluation

effect of its foreign currency components. Excluding

revaluation effects, this compares to an average M2

growth by 14.0% between July and October 2016 and

14.8% during 2015/16.

5 To exclude exchange rate revaluation effects, all foreign currency components in broad money were adjusted by using

the January 2017 exchange rate.

-14

-13

-12

-11

-10

-40

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0

20

40

20

12

/13

20

13

/14

20

14

/15

20

15

/16

Expenditures (LHS)Revenues (LHS)Overall Deficit (RHS)


Figure 36 Contribution to M2 Growth* (in pp)

Source: Central Bank of Egypt. * All foreign currency components at January 2017 exchange rate.

Figure 37 Total Loans to the Private Sector * (in %, y/y)


Figure 38 Developments in Foreign currency deposits (in %)


The recent increase in M2 growth was largely driven by a

substantial decline in the negative contribution of net

foreign assets of the CBE and commercial banks,

supported by the liberalization of the foreign exchange

market under the new foreign exchange regime that

preserved the CBE's foreign assets, improved balance of

payment fundamentals as well as facilitated net external

financing of the fiscal deficit.

In the meantime, higher net external financing of the

fiscal deficit as well as the agreement between the CBE

and the MoF to gradually phase out monetary financing

of the fiscal deficit, as discussed above, led the

contribution of the banking system's net claims on the

government to decline.

On the other hand, the average contribution of claims on

the private sector rose between November 2016 and

January 2017, compared to the period between July and

October 2016, more than offsetting the drop in the

contribution of net claims on the government, yet it is

still lower than the average contribution of claims on the

private sector during 2015/16. However, this masks an

increasing contribution of local currency claims on the

private sector, with January 2017 recording the highest

since August 2000. On the other hand, foreign currency

claims on the private sector sustained its negative

contribution to annual broad money growth which began

since March 2016.

Regarding the components of broad money, currency in

circulation outside the banking system as percent of local

currency deposits in broad money resumed its downward

trend between November 2016 and January 2017,

following an interruption between March and October

2016, registering 23.3% in January 2017. This is by 1.9 pp

higher than the average of 21.4% recorded over the ten

years prior to the January 2011 revolution, yet by 7.2 pp

lower than the peak recorded in August 2013.

The drop of the ratio was supported by the substantial

increase in local currency deposits following the

5

7

9

11

13

15

17

19

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1015202530

Jul-

14

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14

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Ap

r-15

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15

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15

Jan

-16

Ap

r-16

Jul-

16

Oct-

16

Jan

-17

Net Other Items Claims on Private Sector

Claims on PSC Banks NCPEA

CBE NCPEA Banks NCG

CBE NCG Banks NFA

CBE NFA Broad money (RHS)

-20%

-10%

0%

10%

20%

30%

40%

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

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Jan

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Jan

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Jan

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Jan

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Jan

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Jan

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Jan

-16

Jan

-17

L/C claims on private sector

F/C claims on private sector

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0%

10%

20%

30%

40%

50%

60%

70%

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

F/C deposits ratio to total deposits in M2 (%,LHS)F/C deposits (y/y %*, RHS)


Figure 39 Developments of CIC Outside the Banking System (in %)


Figure 40 Developments of the Inverse Money Multiplier and adjusted M0 1/ (in %, unless otherwise stated)

Source: Central Bank of Egypt. 1/ Reserve money adjusted by standing facilities and fixed rate deposit auctions.

introduction of the 20% and the 16% 1.5-year and 3-year

saving certificates in early November 2016, respectively.

It is worth mentioning that the introduction of these

certificates led to a shift within the structure of the

private sector local currency deposits to be dominated by

deposits less than three years in January 2017, after

being dominated by deposits more than three years up to

October 2016. The share of deposits less than three years

rose by 11.2 pp to 48.6% and the share of deposits more

than three years dropped by 9.8 pp to 33.2%, while the

share of other deposits remained roughly unchanged.

Historically, the composition of deposits has been

increasingly leaning towards local currency with few

exceptions during periods of dollarization. More recently

dollarization occurred between January and March 2011,

before resuming the downward trend to date. The slope

of the downward trend sharpened since the rationing of

foreign currency provision to banks by the CBE under the

managed foreign exchange regime and the introduction

of foreign exchange controls in January 2013, which led

to the emergence of parallel foreign exchange markets.

This led the annual growth of foreign currency deposits

(at constant exchange rate of January 2017) to dive to

negative territory, bottoming at negative 4.7% in January

2014. More recently, annual growth of foreign currency

deposits averaged 2.0% between November 2016 and

January 2017, compared to 5.3% between July and

October 2016, impacted by the CBE's policy rate hike and

the introduction of 16% and 20% 3-year and 1.5-year

saving certificates, respectively.

In the meantime, the annual growth of reserve money

(M0) adjusted by standing facilities and fixed rate deposit

auctions averaged 6.4% between November 2016 and

January 2017, recording a substantial drop compared to

an average of 23.0% between July and October 2016 and

24.9% during 2015/16. The tightening was driven by the

introduction of variable rate deposit auctions with

maturities greater than 7 days that absorbed 61.9% of

excess liquidity on average during the three months.

Consequently, the money multiplier measured as the

ratio between local currency components in M2 and

10%

15%

20%

25%

30%

35%

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

CIC to M2 CIC to L/C deposits in M2

-40%

-20%

0%

20%

40%

60%

0.25

0.29

0.33

0.37

0.41

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Adjusted M0 to M2D (LHS)

Adjusted M0 (% y/y, RHS)


reserve money as defined above shifted upward since

November 2016. In addition to the longer-term

absorption of excess liquidity, the above developments

such as the decline of the dollarization ratio as well as the

ratio of currency in circulation as a percent of local

currency deposits also supported a higher multiplier,

while the shift in the structure of local currency deposits

somewhat offset this impact.


2. The Outlook

a) Economic Targets

To address longstanding challenges facing the Egyptian economy, the authorities have

developed a homegrown program, whose credibility was supported by IMF's board approval

of an EFF arrangement. The main elements of the program are (i) tight monetary policy to

bring down inflation to single digits over the medium-term, (ii) strong fiscal consolidation to

lower the general government debt to sustainable levels and avail room for countercyclical

polices, (iii) structural reform measures to promote higher inclusive growth and

employment, and (iv) strengthening the social safety net to offset the impact of reforms on

the vulnerable.

b) The Outlook

Monetary conditions continue to be affected by previous policy rate increases and longer-

term absorption of excess liquidity, as well as by the estimated appreciation of the REER

over the short-term. This is underpinned by the anticipated moderation of monthly inflation

rates which tighten real interest rates using forward looking inflation. The REER appreciation

over the short-term is not expected to neutralize the substantial real depreciation that took

place in November and December 2016, which combined with low levels of inflation over

the medium-term is likely to sustain the improvement in Egypt’s competitiveness.

While the costs associated with the correction of the misalignment of the REER in terms of

transitory inflationary pressures are subsiding, the merits of the adjustment in terms of

sustained improvement of balance of payment components and perseverance of gross

international reserves are being gained. In addition to the expected improvement of net

exports of goods and non-factor services, the exploration of new natural gas fields is

expected to contain hydrocarbon imports, and the ensuing flexible exchange rate regime

facilitates access to international capital markets and encourages foreign investment in

Egypt. Such developments limit future cost-push inflationary pressures.

In the meantime, demand-side inflationary pressures are limited by the likely weakening of

real GDP growth over the short-term, before monetary policy unwinding combined with

growth-supportive measures unleash the economy’s growth potential in a more sustainable

pattern. The recovery of net exports of goods and non-factor services as well as domestic

and foreign investments including FDI are expected to complement consumption as growth

engines by expenditure, while the recovery of tourism, non-petroleum manufacturing as

well as extractions, particularly natural gas, are expected to support economic growth by

sector.

Underpinning this outlook are global assumptions. Global inflation is forecasted to remain

broadly tame in 2017, despite the increase in inflation outlook for advanced economies at a

time when inflation in emerging economies is estimated to be lower. A slight recovery in


economic output is forecasted for advanced as well as emerging economies with divergent

performance. This sets the stage in the global environment for monetary policy

normalization, however at different speeds and forms.

Against this background, given limited pressures from domestic and external variables on

domestic prices looking ahead, the baseline forecast projects monthly inflation to normalize,

while annual inflation is expected to remain elevated given the recent level shift of the CPI

index, before favorable base effects kick-in and reduce the annual rate.

3. Monetary Policy Stance

In its meeting held on March 30, 2017, the MPC decided to keep the overnight deposit rate,

overnight lending rate, and the rate of the CBE’s main operation unchanged at 14.75

percent, 15.75 percent, and 15.25 percent, respectively. The discount rate was also kept

unchanged at 15.25 percent.

Consistent with the inflation outlook and the targeted disinflation path, the MPC judged that

the key CBE rates are appropriate. It reiterated its price stability mandate and that it will

continue to closely monitor all economic and monetary developments as well as the balance

of risks, and will not hesitate to adjust the key CBE rates if needed to ensure price stability

over the medium-term.


Appendix: Tables and Abbreviations


Tables

Table A1: CPI Contribution

Weights Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17

Monthly Contributions to Headline CPI Inflation (in pp)

Headline 100.0 0.8 0.7 1.9 1.2 1.7 4.8 3.1 4.1 2.6 Regulated Items 18.7 0.0 0.1 0.8 0.3 0.2 1.0 0.0 0.1 0.1 Fresh Fruits & Vegetables 6.9 0.3 0.5 0.7 0.0 -0.4 0.2 0.1 0.5 0.7 Core CPI 74.4 0.5 0.2 0.4 0.9 1.9 3.7 3.0 3.5 1.8

Food Prices 31.1 0.3 0.0 0.1 0.4 1.1 2.2 2.4 2.9 1.4 of which

Poultry & Red Meat 10.0 0.2 -0.4 0.0 0.2 0.2 0.5 0.7 0.8 0.7 Food excl. Poultry & Red Meat 21.1 0.1 0.4 0.1 0.2 0.9 1.6 1.7 2.1 0.7

Retail Prices 14.5 0.2 0.1 0.1 0.3 0.3 1.0 0.2 0.5 0.3 Services 28.9 0.1 0.2 0.2 0.3 0.5 0.5 0.4 0.1 0.2

Annual Contributions to Headline CPI Inflation (in pp)

Headline 100.0 14.0 14.0 15.5 14.1 13.6 19.4 23.3 28.1 30.2 Regulated Items 18.7 1.5 1.1 2.0 2.4 2.3 3.4 3.5 3.6 3.5 Fresh Fruits & Vegetables 6.9 3.8 4.3 4.3 2.3 0.7 1.9 2.2 3.3 4.0 Core CPI 74.4 8.6 8.6 9.1 9.5 10.6 14.1 17.6 21.2 22.8

Food Prices 31.1 4.5 4.3 4.8 4.8 6.0 8.3 11.2 14.3 15.2 of which

Poultry & Red Meat 10.0 1.7 1.3 1.6 1.5 1.9 2.4 3.2 3.9 4.5 Food excl. Poultry & Red Meat 21.1 2.8 3.0 3.1 3.3 4.1 5.9 8.0 10.3 10.8

Retail Prices 14.5 1.6 1.7 1.8 2.0 2.2 3.1 3.2 3.7 4.1

Services 28.9 2.5 2.6 2.6 2.6 2.4 2.7 3.2 3.3 3.4

Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt calculations.


Table A2: Egypt's Balance of Payments (USD billion)

Date

Fiscal Years 2015/2016*(1) 2016/2017*

2011/2012

2012/2013

2013/2014

2014/2015

2015/2016*(1)

Q1 Q2 Q1 Q2

Trade Balance -34.1 -30.7 -34.2 -39.1 -38.7 -10.0 -9.9 -8.7 -9.2

Export proceeds ** 25.1 27.0 26.0 22.2 18.7 4.7 4.4 5.3 5.2

Petroleum exports 11.2 13.0 12.4 8.9 5.7 1.7 1.5 1.5 1.4

Other exports 13.8 14.0 13.7 13.4 13.0 3.1 2.9 3.7 3.8

Import payments** -59.2 -57.7 -60.2 -61.3 -57.4 -14.7 -14.3 -

13.9 -

14.4

Petroleum imports -11.8 -12.1 -13.2 -12.4 -9.3 -2.8 -2.6 -2.6 -2.5

Other imports -47.4 -45.6 -46.9 -48.9 -48.1 -11.9 -11.6 -

11.3 -

11.9

Services Balance 12.1 12.4 8.3 10.7 6.5 2.8 1.8 1.4 1.0

Receipts 20.6 22.0 17.4 21.8 16.1 5.0 4.0 3.8 3.5

Transportation 8.6 9.2 9.5 9.9 9.5 2.6 2.4 2.3 2.0

Of which: Suez Canal dues 5.2 5.0 5.4 5.4 5.1 1.4 1.3 1.3 1.2

Travel ( tourism revenues ) 9.4 9.8 5.1 7.4 3.8 1.7 1.0 0.8 0.8

Payments 8.6 9.6 9.2 11.1 9.5 2.2 2.2 2.4 2.5

Travel 2.5 2.9 3.0 3.3 4.1 0.8 0.9 1.1 0.6

Investment Income Balance -6.5 -7.4 -7.3 -5.7 -4.5 -1.1 -1.3 -1.1 -1.1

Receipts 0.2 0.2 0.2 0.2 0.4 0.1 0.1 0.1 0.1

Payments 6.7 7.6 7.5 5.9 4.9 1.2 1.4 1.2 1.2

Of which: Interest paid 0.5 0.8 0.7 0.6 0.8 0.2 0.2 0.2 0.3

Current Transfers 18.4 19.3 30.4 21.9 16.8 4.3 4.0 3.4 4.6

Private (net), 17.8 18.4 18.4 19.2 16.7 4.3 3.9 3.4 4.6

Official (net) 0.6 0.8 11.9 2.7 0.1 0.0 0.0 0.0 0.0

Balance of Current Account -10.1 -6.4 -2.8 -12.1 -19.8 -4.0 -5.4 -5.0 -4.7

Capital & Financial Account 1.0 9.8 5.2 17.9 21.2 1.6 4.5 7.1 10.5

Capital Account -0.1 -0.1 0.2 -0.1 -0.1 0.0 0.0 0.0 0.0

Financial Account 1.1 9.9 5.0 18.1 21.3 1.7 4.6 7.1 10.6

Direct investment abroad -0.2 -0.2 -0.3 -0.2 -0.2 0.0 0.0 -0.1 0.0

Direct investment in Egypt (net) 4.0 3.8 4.2 6.4 6.9 1.4 1.8 1.9 2.4

Portfolio investment abroad -0.1 0.0 0.1 0.0 0.2 0.0 0.1 0.0 0.1

Portfolio investment in Egypt (Net)# -5.0 1.5 1.2 -0.6 -1.3 -1.4 -0.2 -0.8 1.1

Of which: Bonds 0.1 2.3 0.9 -1.1 -1.4 -1.4 0.0 -0.8 0.0

Other Investments (Net) 2.6 4.8 -0.2 12.5 15.6 1.7 3.0 6.1 7.0

Net Borrowing 0.2 1.2 0.2 5.0 7.1 0.8 3.0 1.3 4.7

Medium- and Long-Term Loans (net) -0.3 0.8 -1.0 -0.5 -0.2 -0.6 0.2 0.3 2.7

Medium- and Long-Term Suppliers' Credit 0.0 0.0 -0.1 0.3 1.5 0.1 0.1 0.6 0.3

Short term Suppliers’ Credit (net) 0.6 0.4 1.2 5.3 5.8 1.4 2.6 0.5 1.7

Other Assets 1.2 -2.1 -2.3 -1.2 -3.5 0.2 -3.2 -0.2 -2.2

Other Liabilities 1.2 5.7 1.9 8.7 12.0 0.7 3.2 5.0 4.5

Net Errors & Omissions -2.2 -3.1 -0.9 -2.1 -4.2 -1.3 1.1 -0.2 -0.7

Overall Balance -11.3 0.2 1.5 3.7 -2.8 -3.7 0.3 1.9 5.1

Change in CBE Reserve Assets (Increase -) 11.3 -0.2 -1.5 -3.7 2.8 1.3 -0.3 -1.9 -5.1


* Provisional.

** Including exports and imports of free zones.

# Including net transactions on Egyptian TBs, as well as Egyptian government bonds issued for the Saudi Fund for Development in the

amount of US$ 500 million in FY 2011/2012, Q4. It also includes foreigners' net transactions on medium- term dollar bonds issued by

the Egyptian government in the amount of US$ 2.5 billion in the fourth quarter of 2012/2013, and of US$ 1.0 billion in the first quarter of

2013/2014, in addition to dollar bonds issued in the amount of US$ 1350.0 million in the fourth quarter of 2014/2015.

(1) The data were adjusted according to the latest update.


Table A3: Real GDP contribution at market prices (in pp)

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Jun-15 Mar-16 Jun-16

GDP (at Market Prices) 1.8 2.2 2.2 2.9 4.4 4.3 3.3 3.6 4.5

Domestic Absorption 3.9 6.3 1.6 4.8 4.6 5.9 0.2 5.3 6.2

Consumption, of which: 4.4 5.1 2.9 4.5 3.4 4.2 0.7 4.4 2.0

Private consumption 4.0 4.8 2.7 3.6 2.6 3.7 0.2 4.1 1.3

Public consumption 0.4 0.3 0.2 0.9 0.8 0.5 0.5 0.2 0.7

Gross domestic investments -0.4 1.1 -1.3 0.2 1.2 1.7 -0.5 0.9 4.2

Net exports -2.2 -4.0 0.6 -1.9 -0.2 -1.6 3.2 -1.6 -1.7

Exports of goods and services 0.3 -0.6 0.7 -1.8 -0.1 -2.0 -0.4 -2.4 -0.3

Imports of goods and services -2.5 -3.4 -0.1 0.0 -0.1 0.4 3.5 0.8 -1.4

Net Indirect Taxes -0.1 0.1 -0.1 -0.1 0.9 2.0 0.7 2.1 2.2

Source: Ministry of Planning.

Table A4: Real GDP contribution at factor costs (in pp)

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Jun-15 Mar-16 Jun-16

GDP (at Factor cost) 1.9 2.2 2.2 2.9 3.4 2.3 2.5 1.6 2.3

Public GDP 1.1 0.7 0.3 0.5 0.6 0.4 0.8 0.2 0.2

Private GDP 0.8 1.5 1.9 2.4 2.8 1.9 1.8 1.4 2.1

Agriculture, forestry, fishing and hunting 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Industry -0.1 0.1 0.0 0.2 -0.1 -0.6 -1.2 -0.4 -0.7

Extractions 0.1 0.0 -0.4 -0.6 -0.6 -0.7 -0.3 -0.9 -0.9

Oil 0.1 0.1 -0.1 0.1 0.1 -0.1 0.3 -0.1 -0.4

Natural gas -0.1 -0.1 -0.3 -0.7 -0.7 -0.7 -0.6 -0.8 -0.6

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1

Manufacturing -0.2 0.1 0.4 0.8 0.5 0.1 -0.9 0.4 0.2

Petroleum 0.0 0.0 0.1 0.1 -0.1 0.1 -0.3 0.2 0.1

Non-Petroleum -0.1 0.1 0.3 0.7 0.6 0.0 -0.6 0.2 0.2

Services 0.8 1.1 1.2 1.2 1.9 1.3 1.6 0.8 1.5

Construction 0.2 0.2 0.2 0.3 0.4 0.5 0.5 0.5 0.6

Real Estate Rental and Services 0.1 0.1 0.3 0.6 0.3 0.4 0.5 0.3 0.7

Transportation and Warehousing 0.1 0.1 0.1 0.2 0.2 0.2 0.3 0.2 0.3

Finance 0.1 0.1 0.1 0.2 0.1 0.2 0.2 0.1 0.2

Insurance 1/ 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Communication 0.3 0.2 0.1 0.2 0.2 0.2 -0.1 0.2 0.3

Tourism -0.2 0.1 0.2 -0.7 0.4 -0.7 -0.2 -0.7 -0.9

Educational, Health Care, and Other Services 0.1 0.1 0.1 0.2 0.1 0.2 0.2 0.1 0.2

Utilities 2/ 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2

Information 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Trade 0.2 0.2 0.4 0.7 0.5 0.7 0.7 0.5 0.8

Suez Canal 0.3 0.1 0.0 0.0 0.0 0.0 -0.1 0.0 0.0

General Government 0.3 0.3 0.3 0.5 0.7 0.5 1.2 0.4 0.4

Source: Ministry of Planning. 1/ Includes Social Insurance. 2/ Includes Electricity, Water, and Sewage.


Table A5: Market Developments (aop)

Oct-15

Mar-16

Oct-16

Dec-16

Jan-17

Feb-17

Mar-17*

Latest Vs. Oct. 2016, in bps 1/

Policy Rate

Mid-Corridor Rate, % 9.25 10.40 12.25 15.25 15.25 15.25 15.25 300

Money Market

Interbank WAR,% 8.89 10.25 11.91 15.12 15.22 15.44 15.61 370

Interbank O/N rate, % 8.87 10.18 11.89 14.98 15.11 15.36 15.50 361

Interbank O/N average volume, EGP million 1,524 1,347 1,799 2,468 2,986 3,877 3,707 1,908

Interbank O/N share of total interbank volume, % 65.00 56.00 63.00 56.00 57.00 51.79 44.52 -1,848

Banking Sector 2/

Deposit Rates, % 7.49 8.61 9.27 13.74 13.25 13.25 n/a 398

Time, % 7.43 8.07 9.03 11.62 11.63 11.90 n/a 287

Saving, % 9.81 12.22 12.20 18.48 18.51 18.54 n/a 634

1.5 year, % 8.56 8.35 11.66 19.58 19.83 19.89 n/a 823

3 years, % 9.82 12.23 12.21 15.11 15.32 15.43 n/a 322

Saving Accounts, % 6.19 7.12 7.98 10.32 10.31 10.43 n/a 245

Lending Rates, % 12.41 13.40 14.45 16.50 17.14 17.02 n/a 257

Short term business, % 12.24 13.58 14.92 16.37 16.86 16.90 n/a 198

Long term business, % 11.72 12.64 15.18 16.62 17.30 17.07 n/a 189

Retail, % 14.88 14.29 13.66 16.49 17.14 16.97 n/a 331

Local Debt Market

T-Bill yield 1Y, % 11.56 13.05 16.45 18.86 20.01 18.95 19.09 264

Overall T-bill yield, % 11.47 12.82 15.79 18.86 19.73 18.70 19.34 355

Overall T-bond yield, % 13.33 15.11 17.22 16.85 17.34 16.79 17.13 -8

WACF, % 3/ 9.61 10.59 12.72 15.03 15.72 14.86 15.40 268

Spreads 3/

O/N interbank - mid corridor policy rate, % -0.38 -0.22 -0.36 -0.27 -0.14 0.11 0.25 61

Overall Lending Rate - Mid Corridor, % 3.16 3.00 2.20 1.25 1.89 1.77 n/a -43

Mid Corridor - Overall Deposit Rate, % 1.76 1.79 2.98 1.51 2.00 2.00 n/a -98

WACF - Mid Corridor, % 0.36 0.19 0.47 -0.22 0.47 -0.39 0.15 -32

Overall Yield Curve, % 1.49 1.83 1.14 -1.61 -1.91 -1.53 -1.77 -291

T-bill yield 1Y - deposit rate, % 1.76 1.83 3.89 1.34 2.76 1.91 n/a -197

Overall lending rate - WACF, % 2.80 2.81 1.73 1.47 1.42 2.16 n/a 44

Overall lending rate - T-bill yield, % 3.24 3.14 1.82 1.41 1.36 2.07 n/a 25

Overall lending rate - Deposit rate, % 4.92 4.79 5.18 2.76 3.89 3.78 n/a -140

Short term Business lending - T-bill yield, % 3.07 3.32 2.29 1.29 1.08 1.94 n/a -34

Long term Business lending - T-bill yield, % 2.55 2.38 2.54 1.53 1.52 2.11 n/a -43

Long term Business - Short term Business lending, % 4.92 4.79 5.18 2.76 3.89 3.78 n/a -140


*/ Up to March 15, 2017.

1/ All changes are in basis points with the exception of Interbank o/n volume, the changes are in EGP million.

2/ Data are subject to revision.

3/ Government securities' yields are adjusted for tax.


Table A6: Monetary Survey and Central Bank Accounts (eop, in EGP billion)

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 -7M

Monetary Survey

Net foreign assets 157.6 123.2 119.2 51.5 -87.4 -122.7

Central bank 76.1 38.2 37.4 25.3 -44.9 -37.0

Commercial banks 81.56 84.96 81.77 26.21 -42.53 -85.7

Net domestic assets 936.8 1172.9 1397.4 1714.0 2181.9 2824.3

Net claims on central and local government 568.2 790.6 1038.9 1333.0 1602.7 1921.9

Net claims on public economic authorities 10.5 11.9 6.3 -41.5 52.2 142.3

Claims on public sector companies 40.6 42.9 45.4 63.2 93.1 152.7

Claims on private sector 453.3 497.7 534.5 623.6 712.1 957.6

Net other items -135.8 -170.3 -227.7 -264.2 -278.2 -350.2

Broad money (M2) 1094.4 1296.1 1516.6 1765.5 2094.5 2,701.6

Domestic currency component (M2D) 908.4 1071.9 1280.5 1502.5 1770.7 2,004.9

Currency outside banks 194.0 241.0 270.9 292.7 346.9 378.8

Domestic currency deposits 714.3 830.9 1009.7 1209.8 1423.8 1,626.1

Foreign currency deposits 186.0 224.2 236.1 263.0 323.8 696.8

Central Bank Accounts

Net foreign assets 76 38 37 25 -45 -37

Foreign assets 92 102 116 148 150 506

Foreign liabilities 16 63 78 123 195 543

Net domestic assets 188 280 327 461 523 557.2

Net claims on central and local government 176 310 434 585 658 775.8

Net Claims on Public Economic Authorities -11 -11 -14 -61 -39 -25.6

Claims on Banks 58 43 25 25 120 197.3

Banks' deposits in foreign currency -25 -33 -34 -51 -61 -135.4

Open market operations -3 -21 -44 0 -150 -344.5

Other items net -8 -10 -39 -37 -6 89.6

Reserve money 1/ 264 318 364 486 478 520.2

Currency in circulation 194 241 271 293 347 379

Reserves of banks 70 77 94 193 131 141

Cash at vaults 11 20 18 21 22 23

Deposits in local currency 59 57 76 172 110 118


1/ Reserve money as of end 2014/15 was affected by cancellation of deposit renewals at CBE due to unexpected announcement of national holiday on June 30, 2015


Abbreviations

aop – Average of period

BoP – Balance of payments

bps – Basis points

CAPMAS – Central Agency for Public Mobilization and Statistics

CBE – Central Bank of Egypt

CIC – Currency in circulation

CPI – Consumer price index

EGP/USD – Egyptian pound per US dollars

EGX30 – The Egyptian exchange bench mark index

eop – End of period

FDI – Foreign direct investment

FPIs – Foreign portfolio inflows

FX MARKET – Foreign exchange market

GCC – Gulf Cooperation Council

GDP – Gross domestic product

GIR – Gross international reserves

IMF – International Monetary Fund

IMF EFF – International Monetary Fund Extended Fund Facility

L/C – Local currency

L/F – Foreign currency

LHS – Left hand side

m/m – Month on month

M0 – Reserve money

M2 – Broad money

M2D – Local currency component of broad money

MoF – Ministry of Finance

MPC – Monetary Policy Committee

NDA – Net domestic assets

NCG – Net claims on government

NCPEA – Net claims on public economic authorities

NEGS – Net exports of goods and non-factor services

NDA – Net domestic assets

NEER – Nominal effective exchange rate

NFA – Net foreign assets

O/D – Overdraft facility of the Central Bank of Egypt to the government

O/N – Overnight

OPEC – Organization of Petroleum Exporting Countries

PBS – Private business sector

pp – Percentage points

PSC – Public sector companies

REER – Real effective exchange rate


RHS – Right hand side

SOEs – State-owned enterprises

UK – United Kingdom

US – United States

USD – US dollars

UST - US treasuries

WACF - Weighted average cost of finance

y/y – Year on year

monetary policy report - الصفحة الرئيسية · 2017. 3. 31. · after bottoming in...

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