Egypt to rely heavily on local banks’ finance as further inflows absent; HSBC

HSBC stated, in a recent report, that recent news flow suggests that promised external financing to Egypt is starting to materialize.

Following the announcement that Qatar had provided a USD500m grant in September, the Saudi ambassador to Egypt said on 16 October that his country was planning to grant USD500m to the government and invest a further USD500m in T-bills.

This is clearly positive in terms of addressing the fiscal challenges Egypt faces.

The inflows may also show up in a more robust reading for FX reserves in September and October.

However, the combined total financing amounts to just 6% of what we anticipate to be a USD25bn deficit this fiscal year, and Egypt will continue to rely heavily on the local banks in the absence of further inflows.

Against this backdrop, the Central Bank of Egypt may be shifting towards an easing bias in its monetary policy, although rates were left on hold in the October meeting, and we expect them to remain so for the foreseeable future.

Headline CPI came in at 8.2% y-o-y in September – its lowest level since December 2007 – while core stood at 8.0% However, the m-o-m readings of 1.4% (headline) and 1.1% (core) suggest ongoing pain for the Egyptian consumer, even as the y-o-y numbers come closer to policymakers’ targets.

In addition, ongoing pressure on the Egyptian pound augurs against a rate cut in the short term.