Egypt: Inflation rises in April

Egypt’s CPI inflation rate rose to 13.1% y/y in April, up from 10.5% in March, with food prices a major driver of the acceleration. This was the fastest pace of annual price growth since May 2019 and it exceeded both our forecast (12.0%) and Reuters consensus (11.8%) and makes more rapid tightening by the Central Bank of Egypt more likely at its rate-setting meeting next week. We now anticipate a 300bps hike at the May 19 meeting (from our previous expectation of 200bps) with a further 200bps in June given that inflationary pressures are likely to remain salient through the summer months and the global trend is for tighter monetary policy.

Inflation at multi-year high in April

Source: Bloomberg, Emirates NBD Research

The CBE has already embarked on its rate-hiking cycle after it surprised with a 100bps hike to its benchmark interest rates in March three days prior to its scheduled meeting (at the same time the currency depreciated from its long-held level as the bank stressed the ‘importance of the exchange rate flexibility’.) This interest rate hike took the overnight deposit rate to 9.25%, but this has since been overtaken by the subsequent acceleration in inflation which has taken real interest rates negative once more, while at the same time the roadmap for global monetary tightening has accelerated. The Federal Reserve hiked rates by 50bps last week, the biggest move higher since 2000, and has signposted more such moves over the next several meetings. With domestic inflation higher than anticipated and the attractiveness of emerging markets diminishing for international investors as rates rise in developed markets, we anticipate that the CBE will also ramp up its rate increases.