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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
Monetary Policy Report, March 2017 | Central Bank of Egypt 1
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.
Monetary Policy Report, March 2017 | Central Bank of Egypt 2
Table of Content
THE INITIAL CONDITIONS……………………………………………………………………………………… PAGE 3
THE OUTLOOK………………………………………………………………………………………………….….. PAGE 19
MONETARY POLICY STANCE…………………………………………………………………………………. PAGE 20
APPENDIX: TABLES AND ABBREVIATIONS..……….………………………………………………..... PAGE 21
Monetary Policy Report, March 2017 | Central Bank of Egypt 3
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)
Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt.
Figure 3 Diffusion Index: Headline Inflation by Number of Items that Experienced Price Changes (in %)
Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt.
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
0
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Headline CPI (100%)
Core CPI (74.4%)
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Regulated Items Fruits & Vegetables
Food Prices Retail Prices
Services
-40
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Price increasesPrice decreasesNet
Monetary Policy Report, March 2017 | Central Bank of Egypt 4
Figure 4 Tradable Goods and Egypt’s Nominal Effective Exchange Rate (in %, y/y)
Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt.
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
-50
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NEER (actual depreciation =increase, RHS)
Tradables (LHS)
50
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Food
Energy
Monetary Policy Report, March 2017 | Central Bank of Egypt 5
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
Japan UK
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Monetary Policy Report, March 2017 | Central Bank of Egypt 6
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
-15%
-10%
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0%
5%
10%
15%
20%
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Non-oil exports (LHS)
Non-oil imports (RHS)
0
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120
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Oil imports (LHS)
Oil exports (LHS)
Brent oil price (USD/barrel, RHS)
Monetary Policy Report, March 2017 | Central Bank of Egypt 7
Figure 12 Suez Canal Indicators (in %, y/y, unless otherwise stated)
Source: Central Bank of Egypt and International Monetary Fund.
Figure 13 Private Workers Remittances (in %, y/y)
Source: Central Bank of Egypt and International Monetary Fund.
Figure 14 Net Tourism Inflows and the Services Balance (in USD billion)
Source: Central Bank of Egypt and International Monetary Fund.
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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/16
Suez Canal Tolls (USD billion, LHS)
Suez Canal net tonnage (RHS)
World trade volume of imports (RHS)
-20
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-505
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Nominal GDP growth in the GCC(LHS)
Private remittances (RHS)
-1.0
-0.5
0.0
0.5
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1.5
2.0
2.5
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Net tourism inflows (receipts minus payments)
Services balance
Monetary Policy Report, March 2017 | Central Bank of Egypt 8
Figure 15 Net Foreign Direct and Foreign Portfolio Investments in Egypt (in USD billion)
Source: Central Bank of Egypt.
Figure 16 Net External Borrowing of the Government and the Private Sector (in USD billion)
Source: Central Bank of Egypt.
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)
-1.5-1.0-0.50.00.51.01.52.02.53.03.5
Se
p-1
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Dec-1
2
Ma
r-1
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Jun
-13
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Dec-1
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Jun
-15
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r-1
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Jun
-16
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Short term suppliers credit (net)
Medium term loans and suppliers credit(net)
-8
-6
-4
-2
0
2
4
6
8
Jun
-06
Ma
r-0
7
Dec-0
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p-0
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r-1
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r-1
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Dec-1
6
Global financial crisis
Liberalization of the exchange rate regime
Managed exchange rate regime
Monetary Policy Report, March 2017 | Central Bank of Egypt 9
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%
-4%
-2%
0%
2%
4%
6%
8%
-4%
-2%
0%
2%
4%
6%
Ma
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Se
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Jun
-12
Ma
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3
De
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Se
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Jun
-15
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r-1
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De
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Employment (LHS)
Labour Force (LHS)
Real GDP (RHS)
3.8 2.0
1.4
1.8
-0.9 -0.4
4.3
3.4
2
3
4
5
-2
0
2
4
6
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
0.7
0.6
0.5
2.8
1.7
-2%
0%
2%
4%
Average 2014/15 &2015/16
Sep-16
G. Gov. Suez Canal
Trade Services
Industry Agriculture
GDP growth (factor cost)
Monetary Policy Report, March 2017 | Central Bank of Egypt 10
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
Jun
-07
De
c-0
7Jun
-08
De
c-0
8Jun
-09
De
c-0
9Jun
-10
De
c-1
0Jun
-11
De
c-1
1Jun
-12
De
c-1
2Jun
-13
De
c-1
3Jun
-14
De
c-1
4Jun
-15
De
c-1
5Jun
-16
De
c-1
6
Real growth tourism sector(GDP)Tourist arrrivals multiplied bytourist nights
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jun
-03
Jun
-04
Jun
-05
Jun
-06
Jun
-07
Jun
-08
Jun
-09
Jun
-10
Jun
-11
Jun
-12
Jun
-13
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
Monetary Policy Report, March 2017 | Central Bank of Egypt 11
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)
Source: Central Bank of Egypt.
Figure 26 Overnight Interbank Market (in %, unless otherwise stated)
Source: Central Bank of Egypt.
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
300
350
3-N
ov-1
6
14-N
ov-1
6
23-N
ov-1
6
4-D
ec-1
6
14-D
ec-1
6
25-D
ec-1
6
4-J
an
-17
15-J
an-1
7
24-J
an-1
7
5-F
eb
-17
14-F
eb
-17
23-F
eb
-17
6-M
ar-
17
15-M
ar-
17
Variable DepositsFixed-Rate DepositsStanding Facilities
0
5
10
11.50
13.50
15.50
17.50
3-O
ct-
16
21-O
ct-
16
8-N
ov-1
6
26-N
ov-1
6
14-D
ec-1
6
1-J
an
-17
19-J
an-1
7
6-F
eb
-17
24-F
eb
-17
14-M
ar-
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
Monetary Policy Report, March 2017 | Central Bank of Egypt 12
Figure 27 Interest Rates (in, %)
Source: Central Bank of Egypt.
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
Fe
b-1
0Jun
-10
Oct-
10
Fe
b-1
1Jun
-11
Oct-
11
Fe
b-1
2Jun
-12
Oct-
12
Fe
b-1
3Jun
-13
Oct-
13
Fe
b-1
4Jun
-14
Oct-
14
Fe
b-1
5Jun
-15
Oct-
15
Fe
b-1
6Jun
-16
Oct-
16
Fe
b-1
7
Mid-Corridor rateO/N interbank rateOverall deposit rateOverall lending rate
5
10
15
20
Jul-
14
Se
p-1
4
Nov-1
4
Jan
-15
Ma
r-1
5
Ma
y-1
5
Jul-
15
Se
p-1
5
Nov-1
5
Jan
-16
Ma
r-1
6
Ma
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
5
Nov-1
5
Jan
-16
Ma
r-1
6
Ma
y-1
6
Jul-
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
Monetary Policy Report, March 2017 | Central Bank of Egypt 13
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)
Auction details Oct-15 Mar-16 Oct-16 Dec-16 Jan-17 Feb-17 Mar-17*
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)
Auction details Oct-15 Mar-16 Oct-16 Dec-16 Jan-17 Feb-17 Mar-17*
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
an-1
7
1-F
eb
-17
7-F
eb
-17
13-F
eb
-17
19-F
eb
-17
25-F
eb
-17
3-M
ar-
17
9-M
ar-
17
15-M
ar-
17
30-year spread10-year spread5-year spread
300320340360380400420440460480500
3-N
ov-1
6
14-N
ov-1
6
25-N
ov-1
6
6-D
ec-1
6
17-D
ec-1
6
28-D
ec-1
6
8-J
an
-17
19-J
an-1
7
30-J
an-1
7
10-F
eb
-17
21-F
eb
-17
4-M
ar-
17
15-M
ar-
17
-300
-200
-100
0
100
200
300
No
v-1
2
Ma
r-1
3
Jul-
13
Nov-1
3
Ma
r-1
4
Jul-
14
Nov-1
4
Ma
r-1
5
Jul-
15
Nov-1
5
Ma
r-1
6
Jul-
16
Nov-1
6
Ma
r-1
7*
Monetary Policy Report, March 2017 | Central Bank of Egypt 14
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
-No
v-1
61
5-N
ov-1
62
2-N
ov-1
62
9-N
ov-1
66
-De
c-1
61
3-D
ec-1
62
0-D
ec-1
62
7-D
ec-1
63
-Ja
n-1
71
0-J
an-1
71
7-J
an-1
72
4-J
an-1
73
1-J
an-1
77
-Feb
-17
14-F
eb
-17
21-F
eb
-17
28-F
eb
-17
7-M
ar-
17
14-M
ar-
17
0
20
40
60
80
100
0
100
200
300
400
Nov-1
6
Dec-1
6
Jan
-17
Fe
b-1
7
Ma
r-1
7*
Monthly Average Volumes (RHS)
EGP/USD Bid-Ask Spread (in bps, LHS)
Monetary Policy Report, March 2017 | Central Bank of Egypt 15
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
Source: Central Bank of Egypt.
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
-20
0
20
40
20
12
/13
20
13
/14
20
14
/15
20
15
/16
Expenditures (LHS)Revenues (LHS)Overall Deficit (RHS)
Monetary Policy Report, March 2017 | Central Bank of Egypt 16
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)
Source: Central Bank of Egypt. * All foreign currency components at January 2017 exchange rate.
Figure 38 Developments in Foreign currency deposits (in %)
Source: Central Bank of Egypt. * All foreign currency components at January 2017 exchange rate.
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
-15-10
-505
1015202530
Jul-
14
Oct-
14
Jan
-15
Ap
r-15
Jul-
15
Oct-
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
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
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)
Monetary Policy Report, March 2017 | Central Bank of Egypt 17
Figure 39 Developments of CIC Outside the Banking System (in %)
Source: Central Bank of Egypt.
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)
Monetary Policy Report, March 2017 | Central Bank of Egypt 18
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.
Monetary Policy Report, March 2017 | Central Bank of Egypt 19
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
Monetary Policy Report, March 2017 | Central Bank of Egypt 20
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.
Monetary Policy Report, March 2017 | Central Bank of Egypt 21
Appendix: Tables and Abbreviations
Monetary Policy Report, March 2017 | Central Bank of Egypt 22
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.
Monetary Policy Report, March 2017 | Central Bank of Egypt 23
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
Source: Central Bank of Egypt.
* 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.
Monetary Policy Report, March 2017 | Central Bank of Egypt 24
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.
Monetary Policy Report, March 2017 | Central Bank of Egypt 25
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
Source: Central Bank of Egypt.
*/ 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.
Monetary Policy Report, March 2017 | Central Bank of Egypt 26
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
Source: Central Bank of Egypt.
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
Monetary Policy Report, March 2017 | Central Bank of Egypt 27
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
Monetary Policy Report, March 2017 | Central Bank of Egypt 28
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, March 2017 | Central Bank of Egypt 29