The Emirates National Bank of Dubai (NBD) released a statement about general trends in the region’s monetary policy. It confirmed that monetary policy is effectively expansionary in the context of real rates which have been negative since July 2013. On the other hand, monetary data for MENA’s oil importers in Q1 suggests lending conditions have failed to improve since the start of 2014.
“Although total credit growth in Egypt has remained in the double-digits (20.7% y/y as of January), this masks a sharp discrepancy between loans to the public and private sectors. Indeed, public sector credit expanded 30.4% y/y as of January, while private sector credit increased only 5.4%,” the statement said. This means that private credit growth in Egypt has been negative for eight months in a row, and had fallen fastest in January, ever since March 2010. However, this trend does not only appear in Egypt, but rather in most countries in the region.
On the other hand, private sector deposit inflows have been accelerating, with a growth of 16.9% y/y in Egypt (January) and 9.7% in Jordan (February), compared to 14.0% and 2.9% in the same month a year earlier. “Risks of dollarization in Egypt have not completely disappeared, with FX deposits jumping 8.0% m/m in December 2013, higher than the 7.8% increase seen in February 2011,” according to Emirates NBD.
“Looking ahead, we see limited scope for further monetary loosening across the region, although we do not rule out a further 25bps cut in Jordan’s main policy rate (currently at 4.25%). Having already slashed rates 150bps since July, the Central Bank of Egypt has minimal room to manoeuver in the near term, particularly in the face of elevated inflation,” the statement concluded.
The pace of expansion in the total stock of outstanding credit in the MENA region has slowed in comparison to previous years. In Tunisia and Jordan, the pace of credit growth dropped to 7.2% y/y and 8.6% respectively in February, compared to 13.5% and 15.3% in February 2012.
All graphs are the property of Emirates National Bank of Dubai.