Monetary Policy Report...in early 2018-14 in reaction to the US equity market volatili-ty. In February, the US major equity indices suffered their worst week in two years. January’s

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

Central Bank of Egypt

Monetary Policy Report December 2017

Monetary Policy Committee

16


Disclaimer

The cut-off date for the statistics included in this report was February 15, 2018; and some of

the presented data are preliminary or subject to revisions. There has been new incoming

data since the cut-off date, including but not limited to the release of the inflation statistics

for February and March 2018 and the balance of payments statistics for the second half of

2017, as well as updated domestic monetary aggregates and various data releases for

Egypt’s external environment, including international commodity prices. Furthermore, in its

meeting held on March 29, 2018 the Monetary Policy Committee decided to cut the Central

Bank of Egypt’s key policy rates by 100 basis points and the Ministry of Finance issued a pre-

liminary statement on the 2018/19 fiscal budget. These and all other incoming data will be

incorporated in the following Monetary Policy Report.


Table of Content

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

THE OUTLOOK………………………………………………………………………………………………….….. PAGE 16

APPENDIX: TABLES AND ABBREVIATIONS..……….………………………………………………..... PAGE 18


Figure 1 Trade-Weighted Economic Growth of Egypt’s External Environment 1/

(in %, y/y)

Source: Bloomberg & Central Bank of Egypt calculations. 1/ The series is weighted using Egypt’s trade volume in 2015/16.

Figure 2 Trade-Weighted Headline Inflation of Egypt’s External Environment 1/ (in %, y/y)

Source: Bloomberg & Central Bank of Egypt calculations. 1/The series is weighted using Egypt’s trade volume in 2015/16.

Figure 3 World Trade Growth (in %, y/y)

Source: World Trade Organization.

The Initial Conditions

a) Global economic conditions continued to improve.

After bottoming in 2015 Q4, trade-weighted economic

growth of Egypt’s external environment continued to im-

prove in 2017 Q4, expanding by 3.2%, the highest rate

since 20111. Economic activity in advanced economies

grew by 2.4% in 2017 Q4 after bottoming in 2016 Q1,

supported by improved growth performance in the euro

area and the US compared to the previous quarter.

Meanwhile, output growth in the UK and Japan deceler-

ated in 2017 Q4 compared to the previous quarter. On

the other hand, economic growth of emerging economies

remained unchanged for the second consecutive quarter

in 2017 Q3 at 4.8%, after continuously improving since

2015 Q4. The growth decomposition saw a positive con-

tribution from both Brazil and India while Russia regis-

tered weaker output growth. Meanwhile, China’s eco-

nomic growth registered roughly a similar pace in 2017

Q4 compared to the previous quarter.

After peaking in 2017 Q1, trade-weighted headline infla-

tion of Egypt’s external environment stabilized for the

third consecutive quarter in 2017 Q4 at 2.0%. Inflation in

advanced economies remained roughly stable in 2017,

recording 1.8% in 2017 Q4, higher than 2016, due to a

slight acceleration of US and UK inflation rates. Inflation

remained unchanged in the euro area compared to 2017

Q3, while it marginally decelerated in Japan. Meanwhile,

inflation rates in emerging economies increased in 2017

Q4 for the second consecutive quarter to record 2.6%,

yet remained broadly stable since 2017 Q1 at lower rates

compared to 2016. The increase in 2017 Q4 compared to

the previous quarter came mostly on the back of India’s

inflation which rose to 5.2% in December 2017 compared

to 3.3% in September 2017. Inflation also rose slightly in

both Brazil and China, while it declined modestly in Rus-

sia.

Growth in global trade stabilized in October and Novem-

ber 2017, after registering the fastest pace since 2011 Q1

in 2017 Q3, supported by improved global economic ac-

1 2017 Q4 data for Russia, Brazil and India is based on Bloomberg composite forecasts.

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Dec-1

6

Mar-

17

Jun-1

7

Sep-1

7

Dec-1

7

Advanced Economies

Emerging Economies

World

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Dec-1

6

Mar-

17

Jun-1

7

Sep-1

7

Dec-1

7

Advanced Economies

Emerging Economies

World

-2

0

2

4

6

8

10

Mar-

14

Jun-1

4

Se

p-1

4

Dec-1

4

Mar-

15

Jun-1

5

Se

p-1

5

Dec-1

5

Mar-

16

Jun-1

6

Se

p-1

6

Dec-1

6

Mar-

17

Jun-1

7

Se

p-1

7


Figure 4 International Oil Prices (USD per barrel)

Source: Energy Information Agency

Figure 5 International Food Prices (in %, y/y, using domestic CPI basket weights)

Source: Central Bank of Egypt calulations, World Bank and Food and Agriculture Organization.

Figure 6 Policy Rates of Advanced Economies (in %)

Source: Bloomberg.

tivity. Nevertheless, monetary policy normalization in ad-

vanced economies and China’s credit growth control

could lead to less favorable global financial conditions,

which in turn could constrain the improvement of global

trade growth. This view is reinforced by global trade fore-

cast showing a modest slow-down to 4.6% in 2018 and

4.4% in 2019 compared to 4.7% in 20172.

Oil prices rose from an average of 61.3 USD/bbl in 2017

Q4 to an average of 67.5 USD/bbl during the first two

months of 20183. Oil prices have been subject to high

volatility coinciding with the extension of the production

cut agreement between Russia and the Organization of

Petroleum Exporting Countries (OPEC), two pipeline out-

ages in the North Sea and Libya, geopolitical tensions,

declining US oil inventory reflecting higher demand and

the recent US equity market sell-off. Meanwhile, Brent

price futures indicate downward price pressures reflect-

ing higher projected supply from shale-oil producers.

Despite its increase in January 2018 on a monthly basis,

international core food inflation, according to weights in

the domestic CPI basket, generally declined between Au-

gust 2017 and January 2018, recording an average infla-

tion rate of negative 1.3% after averaging 2.9% between

May and July and 1.0% during the first four months of

2017. This led annual increases in food prices to narrow

to 3.1% in January 2018 after peaking at 14.7% in July

2017. The recent drop in food inflation occurred largely

due to the drop in the prices of dairy products and meat.

The drop in dairy prices reflected higher supply and lower

demand, in addition to uncertainty regarding the large EU

intervention stockpile4. The decline in meat prices was

largely driven by increased supply.

After accelerating in 2017 supported by interest rate dif-

ferentials, capital flows into emerging markets dropped

in early 2018 in reaction to the US equity market volatili-

ty. In February, the US major equity indices suffered their

worst week in two years. January’s US job report, which

2 World Economic Outlook, January 2018. 3 Average period between January 1st and 15th February, 2018. 4 The Common Agricultural Policy (CAP) allows the intervention of national EU agencies aimed at withdrawing surplus pro-duction from the market to stabilize markets.

22

32

42

52

62

72

82

92

102

112

122

Mar-

14

Jun

-14

Sep-1

4

Dec-1

4

Mar-

15

Jun

-15

Sep-1

5

Dec-1

5

Mar-

16

Jun

-16

Sep-1

6

Dec-1

6

Mar-

17

Jun

-17

Sep-1

7

Dec-1

7

14.7

3.1

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Mar-

14

May-1

4Jul-14

Se

p-1

4N

ov-1

4Jan-1

5M

ar-

15

May-1

5Jul-15

Se

p-1

5N

ov-1

5Jan-1

6M

ar-

16

May-1

6Jul-16

Se

p-1

6N

ov-1

6Jan-1

7M

ar-

17

May-1

7Jul-17

Se

p-1

7N

ov-1

7Jan-1

8

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Dec-1

6

Mar-

17

Jun-1

7

Sep-1

7

Dec-1

7

Federal ReserveBank of EnglandEuropean Central Bank


Figure 7 Capital Flows into Emerging Markets Proxy (Index)

Source: Bloomberg.

Figure 8 Selected Trading Partners Currencies Against the USD (in %, m/m, +ve is depreciation)

Source: Bloomberg and Central Bank of Egypt calculations.

Figure 9 EGP Against the USD (in %, m/m, +ve is depreciation)

Source: Central Bank of Egypt calculations.

recorded the highest nominal wage growth since 2009,

raised the odds of accelerated monetary policy normali-

zation. This also coincided with rising US bond yields part-

ly affected by higher US debt supply.

In their monetary policy meetings during November and

December 2017, the Bank of England and the Federal Re-

serve hiked their policy rates, while both central banks as

well as the European Central Bank kept policy rates un-

changed in early 2018. These decisions were largely ex-

pected by markets.

With the exception of only two months, currencies of

Egypt’s main trading partners appreciated against the

USD on a monthly basis since the beginning of 2017,

mainly on anticipation of a more gradual policy tightening

by the Fed. The appreciation during December 2017 and

January 2018 was backed by the firm economic perfor-

mance of the euro area, as well as the progress of Brexit

negotiations between the EU and the UK. It also coincid-

ed with the improvement in the US labor market and the

approval of the tax bill during the same period.

Egypt’s NEER remained broadly unchanged on a monthly

basis during the first eleven months of 2017, as the aver-

age modest appreciation of the EGP/USD, specifically be-

tween July and October, offset the average appreciation

of trading partner currencies against the USD. The appre-

ciation of trading partner currencies in December 2017

and January 2018, however, supported the depreciation

of Egypt's NEER, while the EGP/USD remained largely un-

changed.

Meanwhile, the monthly inflation differential between

Egypt and its main trading partners has been generally

lessening since February 2017, recording in December

2017 and January 2018 notably low differentials. Given

the combination of the broad stability of the NEER and

the positive, yet declining, inflation differential, the REER

has mostly been appreciating on monthly basis during the

first eleven months of 2017. In December 2017 and Janu-

ary 2018, however, the REER depreciated due to the de-

preciation of the NEER as well as the muted monthly in-

100

110

120

130

140

150

160

170

Ma

r-1

4

Ju

l-1

4

No

v-1

4

Ma

r-1

5

Ju

l-1

5

No

v-1

5

Ma

r-1

6

Ju

n-1

6

Oct-

16

Fe

b-1

7

Ju

n-1

7

Oct-

17

-3

-2

-1

0

1

2

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-17

Jan

-18

-12

-9

-6

-3

0

3

6

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-17

Jan

-18


Figure 10 Egypt’s Monthly Inflation Differential with its Main Trading Partners (in %, m/m)

Source: Bloomberg and Central Bank of Egypt calculations.

Figure 11 Contribution to the Current Account (in p.p., y/y unless otherwise specified)

Source: Central Bank of Egypt.

Figure 12 Tourism Receipts and Payments (in USD billion)


flation differentials. As a result of the above, the annual

REER depreciation has been softening since 2017 Q2.

b) The external balance continued to benefit from in-

creased competitiveness and the liberalized ex-

change rate system.

Egypt’s current account deficit continued to narrow, with

the annual improvement accelerating for the fourth con-

secutive quarter in 2017 Q3. The current account deficit

recorded USD 12.4 billion between 2016 Q4 and 2017 Q3,

shrinking by a cumulative USD 8.2 billion (40% y/y) com-

pared to the same period of the previous year. In 2017

Q3, the deficit narrowed by 66% y/y to record USD 1.6

billion.

This was supported by increased competitiveness as

measured by the annual REER depreciation as well as the

ongoing recovery of Egypt's trading partners. The narrow-

ing deficit was driven by a higher contribution from re-

mittances since 2016 Q4 and improving NEGS since 2017

Q1.

The lower deficit of NEGS since 2017 Q1 is attributed to a

lower non-hydrocarbon trade deficit and a higher surplus

of the services balance. Meanwhile, despite the deterio-

ration in the hydrocarbon trade deficit up to 2017 Q2

amid higher oil prices and natural gas imports, yet its

pace narrowed given lower growth of natural gas im-

ports, leading to an annual improvement in the hydro-

carbon balance in 2017 Q3. Generally, improved exports

of goods and services outweighed the effect of increased

imports in these quarters.

During 2017 Q3, the improvement in the non-

hydrocarbon deficit continued to slow down after peak-

ing in 2017 Q1 in line with slower annual REER deprecia-

tion. This was mainly driven by lower positive contribu-

tion from imports which turned negative in 2017 Q3.

Meanwhile, non-hydrocarbon exports recovered in 2017

Q3 after stagnating in 2017 Q2, however its positive con-

tribution was weaker compared to 2017 Q1 and 2016 Q4.

-1

0

1

2

3

4

5

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

No

v-1

7

Dec

-17

Jan

-18

-250

-200

-150

-100

-50

0

50

100

150

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Dec-1

6

Mar-

17

Jun-1

7

Sep-1

7

Services PaymentsTransfersHydrocarbon BalanceServices ReceiptsNon-hydrocarbon BalanceNet Inv. balanceCurrent Account (in %, y/y)

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Mar-

11

Sep-1

1

Mar-

12

Sep-1

2

Mar-

13

Sep-1

3

Mar-

14

Sep-1

4

Mar-

15

Sep-1

5

Mar-

16

Sep-1

6

Mar-

17

Sep-1

7

Gross Tourism Payments

Gross Tourism Receipts

Net Tourism Revenues (RHS)


Figure 13 The Sum of Net FDI inflows and the Current Account Deficit excluding Grants

(in USD billion)


Figure 14 FDIs by Sector Disaggregation

(in USD billion)


Figure 15 Real GDP Growth at Market Prices (in p.p., y/y)

Source: Ministry of Planning, Follow-up and Administrative Reform.

On the other hand, the improvement in the services bal-

ance continued to increase in 2017 Q3, mainly driven by

net tourist receipts. Furthermore, Suez Canal receipts

contributed positively in 2017 Q3 for the first time since

2016 Q1, in line with global trade developments.

Meanwhile, the new exchange rate regime continued to

strengthen foreign investor appetite for Egyptian assets,

supporting the financial account. Net portfolio inflows

continued to improve following its strong rebound in

2017 Q1, with portfolio inflows excluding bonds record-

ing the highest on record in 2017 Q3. During November

and December 2017 net portfolio outflows occurred be-

fore net inflows resumed during January and the first two

weeks of February 2018.

Despite a slight drop in net FDI inflows during 2017 Q3,

net FDIs have been increasingly covering the current ac-

count deficit (excluding grants) since 2016 Q3, reducing

the gap to USD 0.1 billion during 2017 Q3, the lowest

since 2013 Q1. Meanwhile, the policy of no intervention

in the foreign exchange market preserved the CBE’s for-

eign assets, leading GIR to record USD38.2 billion in Janu-

ary 2018, the highest on record. As a result, the ratio of

GIR to total external debt in 2017 Q4 continued to im-

prove and is estimated to record the highest in six years.

c) Economic activity continued to strengthen.

Real GDP growth at market prices continued to increase

for the fourth consecutive quarter to record 5.2% during

2017 Q3 and a preliminary estimate of 5.3% in 2017 Q4,

thereby averaging 5.0% during 2017, the fastest pace

since 2010. This coincided with the drop in the unem-

ployment rate to 11.3% in December 2017, the lowest

rate since December 2010, supported by lower real wag-

es, albeit recovering since 2017 Q2.

Strengthening economic activity in the first three quar-

ters of 2017 compared to the same period in 2016 was

primarily boosted by the pick-up of net external demand

due to more competitive exchange rates followed by

higher public domestic demand, primarily arising from

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

Sep

-07

Sep

-08

Sep

-09

Sep

-10

Sep

-11

Sep

-12

Sep

-13

Sep

-14

Sep

-15

Sep

-16

Sep

-17

-4

-2

0

2

4

6

Sep-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Dec-1

6

Mar-

17

Jun-1

7

Sep-1

7

Gross Outflows

Non-residents Purchases of Real Estate

Oil & Gas

Non-Residents Net Purchase of Companies

Newly Issued Capital or Capital Increase

FDIs Net Inflows

3.7 3.8 3.2 2.4 2.3

1.8

-0.1

1.4 2.3

1.7

-0.1

-1.9 -0.9 -1.3

0.5

5.6

2.3 4.4

3.9

4.9

-4

-2

0

2

4

6

8

03/04-09/10 10/11-13/14 14/15-15/16 2016 9m 2017 9m

Net ExportsΔ in Inventories Gross Domestic InvestmentsPublic ConsumptionPrivate ConsumptionGDP (at Market Prices)


Figure 16 Unemployment rate (in % of total labor force)

Source: Central Agency for Public Mobilization & Statistics and Ministry of Planning, Follow-up and Administrative Reform.

Figure 17 Contribution to Real GDP Growth by Sector (in p.p., y/y)

Source: Ministry of Planning, Follow-up and Administrative Reform.

Figure 18 Leading Indicators

(in percent, y/y, unless otherwise specified)

Source: CAPMAS and IHS Markit.

public investments. This boost has more than offset the

weaker private domestic demand.

The private sector provided 82% of the value added dur-

ing the first nine months of 2017. The value added has

been relatively diversified across sectors. The tourism

and the industrial sectors recorded a positive contribu-

tion during the first nine months of 2017 compared to

their negative contribution during the respective period

in 2016, thereby leading to the strengthening economic

activity. The improvement of the industrial sector was

primarily led by natural gas extractions followed by non-

petroleum manufacturing. Meanwhile, the contribution

of other major sectors to growth remained broadly un-

changed.

Leading indicators generally suggest a continued im-

provement of economic activity, with some indicators

showing a weaker momentum. PMI results continued to

improve in 2017 Q4 and recorded a higher level in Janu-

ary 2018 compared to its average level in 2017 Q4. Car

sales grew on annual terms in November and December

2017 as a result of the positive contribution by passenger

car sales, after previously contracting. On the other hand,

annual tourist nights and industrial production growth

weakened in 2017 Q4 from the average recorded in 2017

Q3.

d) Broad money growth began to ease in line

with fiscal consolidation efforts.5

Annual M2 growth declined slightly due to fiscal consoli-

dation efforts to average 22.7% in 2017 Q4, after increas-

ing since 2016 Q4 mainly due to the recovery of non-

fiscal deficit related NFA of the banking system post the

liberalization of the foreign exchange market as well as

the higher fiscal deficit. This favorably coincided with an-

nual changes of the velocity of M2, which had turned

positive in 2017 Q3 after contracting between 2013 Q2

and 2017 Q2, suggesting lower room for noninflationary

money growth.

5 All F/C components were recalculated excluding foreign exchange rate revaluation.

8

9

10

11

12

13

14

De

c-1

0

Ju

n-1

1

De

c-1

1

Ju

n-1

2

De

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2

Ju

n-1

3

De

c-1

3

Ju

n-1

4

De

c-1

4

Ju

n-1

5

De

c-1

5

Ju

n-1

6

De

c-1

6

Ju

n-1

7

De

c-1

7

0.5 0.4 0.3 0.3 0.4

1.6

0.1 -0.3 -0.6

0.6

2.6

1.1 1.6 1.1

2.8

0.7

0.4 0.6

0.6

0.6

5.9

2.3 2.8

1.9

4.7

-2

0

2

4

6

8

04/05-09/10 10/11-13/14 14/15-15/16 2016 9m 2017 9m

General GovernmentSuez Canal TradeServicesIndustryAgricultureGDP (at factor cost)

40

42

44

46

48

50

52

54

-100

-50

0

50

100

150

200

250

Jun

-15

Sep-1

5

Dec-1

5

Mar-

16

Jun

-16

Sep-1

6

Dec-1

6

Mar-

17

Jun

-17

Sep-1

7

Dec-1

7

PMI (RHS, Index level)

Number of Tourist Nights


Figure 19 Contribution to M2 Growth (in p.p., y/y)


Figure 20 Inflation adjusted L/C Claims on the Private Sector (in %, y/y)


Figure 21 CIC Outside the Banking System1/

(in %)

Source: Central Bank of Egypt. 1/ Average CIC, L/C deposits and M2, four quarters rolling sum of GDP.

The structure of the fiscal deficit financing reversed in

2017 Q4 as foreign non-bank financing declined and fi-

nancing by the domestic banking system rose, albeit by a

weaker extent, leading to a declining contribution by NFA

and an increasing contribution by net claims on govern-

ment.

Meanwhile, the contribution of claims on the private sec-

tor to M2 growth has been generally declining since 2017

Q2. This was driven at first by decreasing F/C claims, fol-

lowed by L/C claims since 2017 Q3. However, the weak-

ening of inflation-adjusted L/C claims on the private sec-

tor began since 2016 Q2, recording annual contractions

during 2017. Growth of L/C claims on the household sec-

tor has been declining since 2016 Q2, recording annual

contractions between 2016 Q4 and 2017 Q4, while

growth in L/C claims on the private business sector wit-

nessed annual contractions in 2017 Q3 and Q4.

The contribution of net claims on public economic au-

thorities and claims on public sector companies, stabi-

lized since 2017 Q3 after declining since 2016 Q4, as the

recovery in both F/C and L/C net claims on public eco-

nomic authorities offset the decline in both F/C and L/C

claims on public sector companies.

Within the components of M2, CIC declined as a percent

of GDP since the liberalization of the foreign exchange

market to record 10.3% in 2017 Q3, the lowest in seven

years, coinciding with tighter monetary policy and the

unification of the foreign exchange market. Similarly, the

decline of CIC as a share of L/C deposits in M2 accelerat-

ed post the liberalization of the foreign exchange market

to record in December 2017 the lowest on record. This

suggests continued normalization of currency holding

behavior.

While annual growth in F/C deposits in USD has been rel-

atively stable, the composition of deposits has been in-

creasingly leaning towards L/C vis-à-vis F/C deposits since

late 2004 in general. Moreover, the introduction of 1.5-

year certificates at a higher rate compared to longer-term

certificates led to a shift in the structure of private sector

-15-10-505

1015202530

Ju

n-1

1

Ju

n-1

2

Ju

n-1

3

Ju

n-1

4

Ju

n-1

5

Ju

n-1

6

Se

p-1

6

De

c-1

6

Ma

r-1

7

Ju

n-1

7

Se

p-1

7

De

c-1

7

Claims on the Private Sector

Other components of M2

Overall Fiscal Deficit excluding financing by the egyptiannon banking sectorM2

-20

-15

-10

-5

0

5

10

15

20

25

Dec-1

0M

ar-

11

Jun

-11

Sep-1

1D

ec-1

1M

ar-

12

Jun

-12

Sep-1

2D

ec-1

2M

ar-

13

Jun

-13

Sep-1

3D

ec-1

3M

ar-

14

Jun

-14

Sep-1

4D

ec-1

4M

ar-

15

Jun

-15

Sep-1

5D

ec-1

5M

ar-

16

Jun

-16

Sep-1

6D

ec-1

6M

ar-

17

Jun

-17

Sep-1

7D

ec-1

7

Household Sector

Private Business Sector

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

10%12%14%16%18%20%22%24%26%28%30%

Mar-

02

Dec-0

2S

ep-0

3Jun

-04

Mar-

05

Dec-0

5S

ep-0

6Jun

-07

Mar-

08

Dec-0

8S

ep-0

9Jun

-10

Mar-

11

Dec-1

1S

ep-1

2Jun

-13

Mar-

14

Dec-1

4S

ep-1

5Jun

-16

Mar-

17

Dec-1

7

CIC to M2

CIC to LC deposits in M2

CIC to GDP (RHS)


Figure 22 Structure of L/C Private Sector Deposits (in % of total Private Sector deposits)


Figure 23 Developments in F/C Deposits (in %, y/y, unless otherwise stated)


Figure 24 Contribution to Adjusted M0 1/ (in p.p., y/y unless otherwise stated)

Source: Central Bank of Egypt. 1/ M0 adjusted by total excess liquidity excluding repatriation flows.

L/C deposits, specifically household deposits, to be domi-

nated by deposits less than 3 years since November 2016,

after being dominated by deposits more than 3 years up

to October 2016.

Annual growth in M0, adjusted by total excess liquidity

excluding flows related to the repatriation mechanism,

has been gradually declining since 2017 Q2. This was

supported by lower excess liquidity growth as defined

above due to lower central bank net claims on govern-

ment and claims on banks. Higher reserve requirements

due to the 400 bps increase of the ratio had a neutral ef-

fect on M0 as defined above.

Consequently, the money multiplier measured as the ra-

tio between M2D and M0 as defined above increased

slightly since 2017 Q2, driven by the narrowing of CIC as

well as excess liquidity as defined above as a share of L/C

deposits, that more than offset the effect of the higher

required reserve ratio.

e) Real monetary conditions continued to tighten.

Real monetary conditions continued to tighten despite

nominal policy rates being kept unchanged during the

last four meetings of the MPC in 2017. This was backed

by the combination of previous policy rate increases, re-

ceding inflationary pressures despite potentially being

impacted by future fiscal consolidation measures, and the

appreciation of the REER on average. Meanwhile, nomi-

nal interest rates in the economy remained broadly un-

changed in 2017 Q4 compared to 2017 Q3, except rates

of government securities which declined.

As of the maintenance period ending February 12, 2018,

average excess liquidity stood at EGP 602.7 billion (14.6%

of GDP in FY 2017/18).6 The absorption of the excess li-

quidity over the short-term via the CBE’s seven-day de-

posit auctions and the O/N deposit facility continued to

be slightly below EGP 30 billion (0.6% of GDP and 5.0% of

excess liquidity) since end of May 2017. Meanwhile, the

effective maturity of liquidity-withdrawing operations via

6 Using the budgeted GDP of 2017/18.

0

20

40

60

80

100

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Dec-1

6

Mar-

17

Jun-1

7

Sep-1

7

Dec-1

7

Earmarked deposits

Deposits less than 3 years

Deposits more than 3 years

Current deposits

-15

-10

-5

0

5

10

15

20

25

0

10

20

30

40

50

60

70

Apr-

03

De

c-0

3A

ug-0

4A

pr-

05

De

c-0

5A

ug-0

6A

pr-

07

De

c-0

7A

ug-0

8A

pr-

09

De

c-0

9A

ug-1

0A

pr-

11

De

c-1

1A

ug-1

2A

pr-

13

De

c-1

3A

ug-1

4A

pr-

15

De

c-1

5A

ug-1

6A

pr-

17

De

c-1

7

Dollarization ratio (in %, F/C deposits to deposits inM2)

F/C deposits (RHS)

(20.0)

(10.0)

-

10.0

20.0

30.0

40.0

50.0

60.0

Aug

-16

Oct-

16

Dec-1

6

Fe

b-1

7

Apr-

17

Jun-1

7

Aug

-17

Oct-

17

Dec-1

7

Excess liquidity excluding repatriation flows

Vault cash

L/C deposits of banks at the CBE

Currency in circulation outside banks

Adjusted M0 (in %, y/y)


Figure 25 Excess Liquidity 1/ (in EGP billion)

Source: Central Bank of Egypt. 1/ Excess liquidity is adjusted by O/N lending facility.

Figure 26 O/N Interbank and CBE Policy Rates

(in %, unless otherwise stated)


Figure 27 Short-term Interbank Market Yield Curve (in %)

Source: Central Bank of Egypt calculations.

variable rate deposit auctions greater than seven days

has been continuously declining between June and Octo-

ber 2017, before stabilizing at below 20 days between

the maintenance periods ending October 23, 2017 and

February 12, 2018.

The shortening of the absorption tenor supported the

O/N interbank rate and the w.a. interbank rate across

maturities to remain below the policy rate by an average

of 30 bps and 24 bps, respectively since mid-August 2017.

Consistently, interbank activity continued to remain

weaker between the maintenance periods ending Octo-

ber 23, 2017 and February 12, 2018 compared to the

previous nine maintenance periods, despite inching up

post the increase in the reserve requirement ratio and

the net portfolio outflows witnessed between November

and December 2017. Moreover, the money market yield

curve generally shifted downwards slightly during the

nine maintenance periods ending February 12, 2018,

compared to the nine previous maintenance periods end-

ing October 23, 2017.

Excluding the minor increase in December 2017, L/C de-

nominated treasury yields continued to drop in January

2018 and the first two issuances in February 2018, re-

suming its decrease since August 2017. The WACF rec-

orded 13.5% on a tax adjusted basis during the first two

issuances in February 2018, the lowest level since No-

vember 2016 and reflecting only a 11% transmission of

the CBE’s 700 basis points hike of its key policy rates,

compared to a peak transmission of 63% in July 2017. The

transmission was suppressed by the diversification of fi-

nancing sources of the fiscal deficit.

The recent drop in treasury yields was chiefly driven by

increased demand, which was mainly due to the recovery

of foreign portfolio investments. The coverage ratio rose

to record 2.2x and 2.5x during the first two issuances in

February and in January 2018, respectively, compared to

2.0x in November and December 2017. Meanwhile, the

yield curve remained inverted due to the higher demand

for T-bonds than for T-bills, which reflected the contin-

ued attempts by investors to lock on high yields for the

0.0

100.0

200.0

300.0

400.0

500.0

600.0

14-O

ct-

13

20-J

an-1

4

28-A

pr-

14

4-A

ug-1

4

10-N

ov-1

4

16-F

eb

-15

25

-May-1

5

31

-Aug

-15

7-D

ec-1

5

14-M

ar-

16

20-J

un-1

6

26

-Sep

-16

2-J

an

-17

10-A

pr-

17

17-J

ul-17

23-O

ct-

17

29-J

an-1

8

Average Variable-Rate Deposits

Average Fixed-Rate Deposit

Average O/N Deposit Facility

Average Excess Liquidity

0

20

40

60

80

8.0

12.0

16.0

20.0

14-O

ct-

13

23-D

ec-1

33-M

ar-

14

12-M

ay-1

421-J

ul-1

429-S

ep-1

48-D

ec-1

416-F

eb-1

527-A

pr-

15

6-J

ul-15

14-S

ep-1

523-N

ov-1

51-F

eb-1

611-A

pr-

16

20-J

un

-16

29-A

ug-1

67-N

ov-1

616-J

an

-17

27-M

ar-

17

5-J

un-1

714-A

ug-1

723-O

ct-

17

1-J

an-1

8

O/N Interbank Volume (in EGP billion, RHS)

Key Policy Rate

O/N Lending Facility

O/N Deposit Facility

O/N Interbank Rate

18.5

19.3

20.0

O/N < 1W 1W < 1M

Key Policy Rate

Monday 23-Oct-17

Monday 12-Feb-18


Figure 28 Rates of the Treasury’s L/C marketable securi-ties1/ (in %, unless otherwise stated)

Source: Central Bank of Egypt calculations. 1/ Up to February 13, 2018.

Figure 29 Local Debt Coverage Ratios1/ (in (x), unless otherwise stated)

Source: Central Bank of Egypt calculations. 1/ Up to February 13, 2018.

Figure 30 Interest Rates1/ (in %)

Source: Central Bank of Egypt. 1/ Up to December 2017.

longer-term, given expectations of policy rate cuts amid

receding inflationary pressures. Nevertheless, the recent

minor narrowing of the inverted yield curve witnessed

during the first two issuances in February and in January

2018 was due to the significant increase in demand for T-

bills recently, pressuring T-bill yields to decline slightly

more than T-bond yields.

Meanwhile, the drop in the WACF was further supported

by the recent decline in net issuance of L/C denominated

market debt. Furthermore, in 2017 Q4 the share of L/C

denominated market financing of the fiscal deficit de-

clined for the first time after increasing for three consec-

utive quarters, despite increasing in nominal terms.

In the banking system, both the w.a. rate for new depos-

its and loans across maturities and categories remained

broadly unchanged at 15.3% and 19.1% in 2017 Q4, re-

flecting around 84% and 72% transmission of the CBE’s

700 basis points hike of its key policy rates. This came de-

spite the decline of longer-term business lending rates in

2017 Q4.

While the response of the w.a. lending rate was across

the board during the second half of 2017, that of the w.a.

deposit rate was driven by time deposit rates which re-

acted to the increase in the CBE’s policy rate hike by 400

basis points between May and July 2017. Meanwhile the

rate of saving certificates remained broadly unchanged at

around 19.0%, after rising in November 2016 post the

introduction of 20% 1.5-year and 16.0% 3-year certifi-

cates.

Against this background, the spread between the w.a.

lending and deposit rate remained broadly unchanged at

3.8p.p. in 2017 Q4, 1.1p.p. lower compared to a longer-

term average of 4.9p.p. The narrowing of the net interest

rate margin was mainly due to an increasing share of sav-

ing certificates of new deposits. Meanwhile, the spread

between lending and time deposit rates remained stable.

Furthermore, the equity market continued to reflect val-

ue increases, in spite of the recent decline in line with the

-300

-200

-100

0

100

200

300

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

Sep-1

2

Fe

b-1

3

Jul-13

Dec-1

3

May-1

4

Oct-

14

Mar-

15

Aug-1

5

Jan-1

6

Jun-1

6

Nov-1

6

Apr-

17

Sep-1

7

Fe

b-1

8

T-bonds Yield (w.a.)

T-bills Yield (w.a.)

WACF (Tax adjusted)

T-Bonds - T-Bills yield differential (in bps, w.a., tax adjusted,RHS)

0.0

5.0

10.0

15.0

20.0

0.0

2.0

4.0

6.0

8.0

Sep-1

2

Jan-1

3

May-1

3

Sep-1

3

Jan-1

4

May-1

4

Sep-1

4

Jan-1

5

May-1

5

Sep-1

5

Jan-1

6

May-1

6

Sep-1

6

Jan-1

7

May-1

7

Sep-1

7

Jan-1

8

Coverage Ratio for T-billsCoverage Ratio for T-bondsTotal Demand for Local DebtWACF (In %, tax adjusted, RHS)

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Dec-1

1

May-1

2

Oct-

12

Mar-

13

Au

g-1

3

Jan-1

4

Jun-1

4

Nov-1

4

Ap

r-1

5

Se

p-1

5

Feb

-16

Jul-16

Dec-1

6

May-1

7

Oct-

17

O/N Interbank Rate

WACF (Tax adjuxted)

Weighted Average Rate of New Deposits

Weighted Average Rate of New Lending


Figure 31 Stock Market Indices1,2/

(Index, November 1, 2016 = 100)

Source: Egyptian Stock Exchange and Central Bank of Egypt calculations. 1/ Equity performance calculated on EGP basis. 2/ Up to February 15, 2018.

Figure 32 Headline and Core Inflation1/ (in %, y/y, weights in parenthesis)

Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt. 1/Core inflation is headline inflation excluding regulated and volatile food items.

global equity sell off. The EGX30 benchmark index rec-

orded all-time highs in January 2018, registering cumula-

tive increase of 83% between November 2016 and Janu-

ary 2018, yet remained below the October 2016 level in

USD terms by a magnitude of 9.3%. This pickup was sup-

ported by net foreign investments in the domestic equity

market amounting to USD 1.4 billion since November 3,

2016. Total market capitalization increased to record

18.0% of GDP between July 2017 and February 15, 2018,

compared to 16.2% in FY 2016/17.7

Moreover, real asset prices, as reflected by unit prices in

the real estate sector, continued to increase on inflation

adjusted basis during 2017 Q4. During 2017, numerous

developers managed to mitigate higher interest rates and

construction costs while retaining demand in the wake of

lower purchasing power and potential liquidity shortages

by offering more flexible and longer-term payment plans.

Demand was especially evident for residential vis-à-vis

retail real estate.

Meanwhile, the recently issued Eurobonds in February

2018 continued to reflect investors’ confidence as yields

were lower on average compared to previous issuances.

Furthermore, Egypt's sovereign credit default swap

spreads continued to drop after briefly picking up in No-

vember 2017 and before inching up slightly during the

first days in February 2018. However, Egypt’s CDS

spreads remained relatively low compared to the majori-

ty of peers with similar sovereign credit rating.

f) Inflationary pressures have been contained.

Inflationary pressures have been contained, a conse-

quence of tighter real monetary conditions. This has been

evident by relatively tame monthly inflation figures, de-

spite being affected by upward adjustments of regulated

prices.

Monthly headline inflation registered negative 0.1% and

negative 0.2% in January 2018 and December 2017, re-

spectively. This comes after stabilizing in the period be-

7 Using the budgeted GDP of 2017/18.

0.0

50.0

100.0

150.0

200.0

250.0

300.0

1-N

ov-1

627-N

ov-1

622-D

ec-1

618-J

an

-17

14-F

eb

-17

12-M

ar-

17

5-A

pr-

17

7-M

ay-1

731-M

ay-1

72-J

ul-1

727

-Ju

l-1

722-A

ug

-17

20-S

ep

-17

18-O

ct-

17

13-N

ov-1

710-D

ec-1

74-J

an

-18

1-F

eb

-18

EGX30 IndexEGX70 IndexEGX100 Index

0

4

8

12

16

20

24

28

32

36

0

4

8

12

16

20

24

28

32

36

Jan-1

4

May-1

4

Se

p-1

4

Jan-1

5

May-1

5

Se

p-1

5

Jan-1

6

May-1

6

Se

p-1

6

Jan-1

7

May-1

7

Se

p-1

7

Jan-1

8

Headline Inflation (100%)

Core Inflation (74.43%)


Figure 33 Headline and Core Inflation (in %, m/m, weights in parenthesis)

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

Figure 34 Contribution to Headline Inflation (in p.p., m/m)


Figure 35 Diffusion Index: Headline Inflation by Number of Items that Experienced Price Changes (in %)


tween August and November 2017 at around 1.1%, af-

fected by upward adjustments of regulated prices which

accounted on average for 44% of monthly headline infla-

tion.

Monthly core inflation inched up by 0.2% in January 2018

after registering in December 2017 negative 0.4%, the

first negative rate since August 2015. Monthly core infla-

tion had averaged 0.3% in August and September 2017

before increasing to 0.7% in October 2017 and to 1.3% in

November 2017 due to seasonal pressures on education

and clothing prices, respectively.

Due to tame monthly dynamics, annual headline and core

inflation declined for the sixth consecutive month to rec-

ord respectively, 17.1% and 14.4% in January 2018, after

peaking in July 2017 at 33.0% and 35.3%. Headline and

core annual inflation rates thereby registered, respective-

ly, the lowest rates since October and September 2016.

Favorable base effects have been accelerating the decline

of annual inflation rates since November 2017.

The number of items that experienced price increases

narrowed to 9.3% on average during the period between

August 2017 and January 2018. This is lower compared to

an average of 15.0% witnessed historically during the

same period.

The inflationary impact of the domestic currency depre-

ciation has diminished, including the effect on items that

witness delayed or seasonal consumption such as educa-

tion in October 2017.

In the meantime, prices of regulated items contributed

significantly to headline inflation between July and No-

vember 2017 and marginally in January 2018. This was

mainly due to subsidy reforms related to hydrocarbons,

electricity and water supply as well as upward adjust-

ments of other regulated items such as tobacco, medical

products and public education.

Contained monthly inflation was broad-based, especially

in core inflation items. Services and retail items have

-2

-1

0

1

2

3

4

5

6

Ja

n-1

6

Ma

r-1

6

Ma

y-1

6

Ju

l-1

6

Se

p-1

6

No

v-1

6

Ja

n-1

7

Ma

r-1

7

Ma

y-1

7

Ju

l-1

7

Se

p-1

7

No

v-1

7

Ja

n-1

8

Headline Inflation (100%)

Core Inflation (74.43%)

-1

0

1

2

3

4

5

Jan

-16

Mar-

16

May-1

6

Jul-16

Se

p-1

6

Nov-1

6

Jan

-17

Mar-

17

May-1

7

Jul-17

Se

p-1

7

Nov-1

7

Jan

-18

Regulated ItemsFresh Fruits & VegetablesCore Food ItemsRetail ItemsServices

-15

-5

5

15

25

35

45

55

Jan-1

4

Ma

y-1

4

Se

p-1

4

Jan-1

5

Ma

y-1

5

Se

p-1

5

Jan-1

6

Ma

y-1

6

Se

p-1

6

Jan-1

7

Ma

y-1

7

Se

p-1

7

Jan-1

8

Price increases

Price decreases

Net

Annual headline inflation rate


Figure 36 Timing of Regulated Price Adjustments as Re-flected in CPI

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

Figure 37 Contribution to Headline Inflation (in p.p., m/m)


Figure 38 International vs. Domestic Core Food Prices (in %, m/m, using domestic CPI basket weights)

Source: Central Agency for Public Mobilization and Statistics, Central Bank of Egypt, World Bank and Food and Agriculture Organization.

been only contributing marginally to headline inflation

since January and March 2017, respectively, with some

exceptions mostly due to seasonality or due to fiscal re-

form measures.

Meanwhile, food inflation resumed its downward trend

since August 2017, registering consecutive negative rates

since November 2017. Negative food inflation was wit-

nessed for the first time since January 2016. The down-

ward trend was driven by lower core food inflation ex-

cept in November 2017 and January 2018, where despite

muted core food inflation, lower volatile food inflation

took the lead.

In January 2018, poultry prices continued to decline for

the eighth consecutive month while red meat prices sta-

bilized after declining in December 2017 for the first time

since December 2015. Red meat prices were stable be-

tween September and November 2017 after recording

consecutive increases since April 2016.

While historically low inflation in November and Decem-

ber was mainly driven by lower prices of volatile food

items, November and December 2017 inflation reflected

cumulatively a relatively weaker decline that was com-

pensated for in January 2018. Prices of fresh vegetables

have been declining since November 2017 after increas-

ing between July and October 2017, while prices of fresh

fruits have generally stabilized.

Very muted core food inflation domestically since August

2017 generally coincided with very muted international

core food inflation using domestic CPI basket weights

during the same period. This comes after international

core food inflation was relatively higher between May

and July 2017, while domestic core food inflation was

comparably contained despite being affected by seasonal

effects and indirect effects of subsidy reform measures.

During the first four months of 2017 domestic core food

inflation was elevated due to domestic economic reform

measures, despite relatively muted international core

food inflation.

-1

0

1

2

3

4

5

6

Jan-1

6

Mar-

16

May-1

6

Jul-16

Se

p-1

6

Nov-1

6

Jan-1

7

Mar-

17

May-1

7

Jul-17

Se

p-1

7

Nov-1

7

Jan-1

8

Non-Food (60.1%)

Food (39.9%)

-6

-4

-2

0

2

4

6

8

10

Jan-1

5

Ap

r-1

5

Jul-15

Oct-

15

Jan-1

6

Ap

r-1

6

Jul-16

Oct-

16

Jan-1

7

Ap

r-1

7

Jul-17

Oct-

17

Jan-1

8

International Core Food Prices (based ondomestic weights)Domestic Core Food Prices

October 2017

November 2017

January 2018

• Health insurance services.

• Natural gas installation cost

• Tobacco

•Government School and pri-vate lessons

•Landline tele-phones


The Outlook

The outlook for average annual headline inflation remains consistent with achieving the

CBE's target of 13% (±3%) in 2018 Q4 and single digits thereafter. The MPC’s decision to cut

key policy rates by 100 bps in its meeting on February 15, 2018 remains consistent with tight

real monetary conditions; a necessary requirement to achieve low and stable inflation over

the medium-term. This was supported by the combination of previous policy rate increases

and receding inflationary pressures.

Figure 39 Inflation Forecast1/ (in %, y/y)

Source: Central Bank of Egypt. 1/ The chart captures uncertainty regarding the inflation forecast with its most likely evolution, given the risks. The band around the center of the forecast shows the range of inflation outcomes that can occur with 30% probability, while the widening bands represent a gradually increasing probability of 50%, 70% and 90%.

The government is targeting to continue pursuing its comprehensive economic reform pro-

gram with the aim of achieving higher, more sustainable and inclusive growth. The overall

fiscal deficit in 2017/18 is targeted to decline to 9.8%8 of GDP compared to 10.9% in

2016/179 and to reach around 6.2% of GDP by 2019/20. The primary balance is targeted to

record a surplus for the first time since 2002/03 by a magnitude of 0.2% of GDP in 2017/18,

after recording a deficit of 1.8% in 2016/17. This surplus is targeted to increase to 2.0% of

GDP over the period between 2018/19 and 2020/21.

Real GDP growth is expected to continue expanding, increasingly supported by private de-

mand, while public demand is expected to be affected by fiscal consolidation efforts. Net

exports as well as domestic and foreign investments are expected to complement consump-

tion as growth drivers.

Globally, Brent oil prices are projected to average USD 64.9 and USD 67.0 per barrel in fiscal

years 2017/18 and 2018/19, respectively.10 International food prices relevant to Egypt's con-

sumption basket are forecasted to remain relatively stable in FY 2017/18. Meanwhile, de-

8 This figure was upwardly revised by the ministry of finance from the budgeted 9.0% of GDP since the last monetary policy report.

9 Data for FY 2016/17 are pre-actual according to the ministry of finance.

10 As of February 15, 2018.

0

5

10

15

20

25

30

35

Ma

r-1

6

Ju

n-1

6

Se

p-1

6

De

c-1

6

Ma

r-1

7

Ju

n-1

7

Se

p-1

7

De

c-1

7

Ma

r-1

8

Ju

n-1

8

Se

p-1

8

De

c-1

8

90% 70% 50% 30% confidence interval


spite the recent volatility in global financial markets, the recovery of global inflation and

economic activity is expected to continue.

Domestic risks surrounding the baseline inflation outlook include the evolution of inflation

expectations, the timing and magnitude of potential subsidy-reform measures, as well as

demand-side pressures. Risks from the global economy are crude oil price developments and

the pace of tightening financial conditions.


Appendix: Tables and Abbreviations


Table A1: CPI Contribution

Weights Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17

Sep-17

Oct-17

Nov-17

Dec-17

Jan-18

Monthly Contributions to Headline CPI Inflation (in p.p.)

Headline 100.0 4.1 2.6 2.0 1.7 1.7 0.8 3.2 1.1 1.0 1.1 1.0 -0.2 -0.1

Regulated Items 18.7 0.1 0.1 0.3 0.0 0.0 0.0 1.0 0.5 0.4 0.5 0.5 0.0 0.1

Fresh Fruits & Vegetables 6.9 0.5 0.7 1.0 0.9 0.3 -0.4 0.3 0.4 0.5 0.1 -0.4 0.0 -0.3

Core CPI 74.4 3.5 1.8 0.7 0.8 1.4 1.2 1.9 0.2 0.1 0.5 0.9 -0.3 0.1

Food Prices 31.1 2.9 1.4 0.5 0.7 0.8 0.7 1.0 0.2 -0.2 0.0 0.1 -0.3 0.1

of which

Poultry & Red Meat 10.0 0.8 0.7 0.4 0.3 0.5 0.2 0.3 0.1 -0.1 -0.2 -0.1 -0.2 0.0

Food excl. Poultry & Red Meat 21.1 2.1 0.7 0.1 0.4 0.3 0.6 0.7 0.1 -0.1 0.2 0.3 0.0 0.1

Retail Prices 14.5 0.5 0.3 0.0 0.0 0.0 0.4 0.1 0.0 0.4 0.0 0.6 0.0 0.0

Services 28.9 0.1 0.2 0.1 0.1 0.6 0.1 0.9 0.0 0.0 0.5 0.2 0.0 0.0

Annual Contributions to Headline CPI Inflation (in p.p.)

Headline 100.0 28.1 30.2 30.9 31.5 29.7 29.8 33.0 31.9 31.6 30.8 26.0 21.9 17.1

Regulated Items 18.7 3.6 3.5 3.7 3.7 3.2 3.2 4.4 4.1 4.3 4.6 4.0 3.9 3.7

Fresh Fruits & Vegetables 6.9 3.3 4.0 5.0 5.7 5.4 4.6 4.4 4.2 4.8 5.3 4.4 4.2 3.3

Core CPI 74.4 21.2 22.8 22.2 22.1 21.1 22.0 24.2 23.6 22.5 20.9 17.6 13.8 10.1

Food Prices 31.1 14.3 15.2 15.0 15.2 14.4 15.0 16.2 16.0 15.1 13.7 11.2 8.2 5.2

of which

Poultry & Red Meat 10.0 3.9 4.5 4.7 4.9 4.9 4.9 5.6 5.6 5.2 4.6 3.7 2.7 1.8

Food excl. Poultry & Red Meat 21.1 10.3 10.8 10.3 10.3 9.5 10.1 10.6 10.4 10.0 9.1 7.5 5.5 3.5

Retail Prices 14.5 3.7 4.1 3.9 3.6 3.0 3.4 3.4 3.2 3.4 3.1 2.8 2.5 2.0

Services 28.9 3.3 3.4 3.3 3.3 3.6 3.6 4.6 4.4 4.0 4.1 3.6 3.1 2.9

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


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

Date

2015/2016*(1) 2016/2017* 2017/18*

2013 /2014

2014/2015

2015/ 2016*

(

1)

2016/ 2017*

(

1)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Trade Balance -34.2 -39.1 -38.7 -35.4 -10.0 -9.9 -10.0 -8.8 -9.4 -9.2 -9.2 -8.4 -8.9

Export proceeds ** 38.4 31.1 24.4 28.2 4.7 4.4 4.3 5.3 5.3 5.2 5.5 5.7 5.8

Petroleum exports 26.0 22.2 18.7 21.7 1.7 1.5 1.1 1.5 1.5 1.4 1.7 1.9 1.8

Other exports 12.4 8.9 5.7 6.5 3.1 2.9 3.2 3.8 3.7 3.8 3.8 3.8 4.1

Import payments** -60.2 -61.3 -57.4 -57.1 -14.7 -14.3 -14.2 -14.1 -

14.7 -14.4 -14.7 -14.1 -14.8

Petroleum imports -13.2 -12.4 -9.3 -11.2 -2.8 -2.6 -1.6 -2.2 -2.7 -2.5 -3.1 -3.0 -2.8

Other imports -46.9 -48.9 -48.1 -45.9 -11.9 -11.6 -12.6 -11.9 -

11.9 -11.9 -11.6 -11.1 -12.0

Services Balance 8.3 10.7 6.5 6.8 2.8 1.8 0.9 1.0 1.4 1.0 2.0 2.3 2.8

Receipts 17.4 21.8 16.1 16.6 5.0 4.0 3.4 3.6 3.8 3.5 4.2 5.1 5.7

Transportation 9.5 9.9 9.5 9.1 2.6 2.4 2.2 2.3 2.3 2.0 2.3 2.4 2.3

Of which: Suez Canal dues 5.4 5.4 5.1 4.9 1.4 1.3 1.2 1.2 1.3 1.2 1.2 1.2 1.4

Travel ( tourism revenues ) 5.1 7.4 3.8 4.4 1.7 1.0 0.6 0.5 0.8 0.8 1.3 1.5 2.7

Payments 9.2 11.1 9.5 9.8 2.2 2.2 2.6 2.6 2.4 2.5 2.2 2.8 2.8

Travel 3.0 3.3 4.1 2.7 0.8 0.9 1.2 1.2 1.1 0.6 0.4 0.6 0.6

Investment Income Balance -7.3 -5.7 -4.5 -4.4 -1.1 -1.3 -0.7 -1.4 -1.1 -1.1 -1.0 -1.2 -1.5

Receipts 0.2 0.2 0.4 0.5 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2

Payments 7.5 5.9 4.9 4.9 1.2 1.4 0.8 1.5 1.2 1.2 1.1 1.4 1.7

Of which: Interest paid 0.7 0.6 0.8 1.1 0.2 0.2 0.1 0.2 0.3 0.3 0.3 0.3 0.4

Current Transfers 30.4 21.9 16.8 17.5 4.3 4.0 4.1 4.4 4.4 4.6 4.6 4.9 6.0

Private (net), 18.4 19.2 16.7 17.3 4.3 3.9 4.1 4.3 4.3 4.6 4.6 4.8 5.9

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

Balance of Current Account -2.8 -12.1 -19.8 -15.6 -4.0 -5.4 -5.7 -4.8 -4.8 -4.7 -3.5 -2.4 -1.6

Capital & Financial Account 5.2 17.9 21.2 29.0 1.6 4.5 8.4 6.6 7.2 10.5 7.0 4.4 6.2

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

Financial Account 5.0 18.1 21.3 29.1 1.7 4.6 8.4 6.6 7.2 10.6 7.1 4.4 6.3

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

Direct investment in Egypt (net) 4.2 6.4 6.9 7.9 1.4 1.8 2.8 1.0 1.9 2.4 2.3 1.4 1.6

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

Portfolio investment in Egypt (Net)

# 1.2 -0.6 -1.3 16.0 -1.4 -0.2 0.1 0.2 -0.8 1.1 7.6 8.2 7.5

Of which: Bonds 0.9 -1.1 -1.4 5.5 -1.4 0.0 0.0 0.0 -0.8 0.0 4.0 2.3 0.0

Other Investments (Net) -0.2 12.5 15.6 5.2 1.7 3.0 5.6 5.4 6.3 7.0 -2.8 -5.1 -2.7

Net Borrowing 0.2 5.0 7.1 7.7 0.8 3.0 1.5 1.8 1.5 4.7 1.2 0.5 0.9 Medium- and Long-Term Loans (net) -1.0 -0.5 -0.2 4.1 -0.6 0.2 0.2 0.0 0.3 2.7 1.2 0.0 1.0

Medium- and Long-Term Suppli-ers' Credit -0.1 0.3 1.5 1.5 0.1 0.1 0.5 0.8 0.6 0.3 0.0 0.6 0.2

Short term Suppliers’ Credit (net) 1.2 5.3 5.8 2.1 1.4 2.6 0.8 1.0 0.6 1.7 0.0 0.0 -0.3

Other Assets -2.3 -1.2 -3.5 -12.1 0.2 -3.2 -1.3 0.8 -0.2 -2.2 -3.2 -6.5 -3.6

Other Liabilities 1.9 8.7 12.0 9.6 0.7 3.2 5.4 2.8 5.0 4.5 -0.8 0.8 0.0

Net Errors & Omissions -0.9 -2.1 -4.2 0.3 -1.3 1.1 -3.0 -1.0 -0.6 -0.7 0.5 0.7 0.5

Overall Balance 1.5 3.7 -2.8 13.7 -3.7 0.3 -0.2 0.8 1.9 5.1 4.0 2.7 5.1

Change in CBE Reserve Assets (Increase -) -1.5 -3.7 2.8 -13.7 3.7 -0.3 0.2 -0.8 -1.9 -5.1 -4.0 -2.7 -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: GDP Contribution

2012/13 2013/14 2014/15 2015/16 Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

GDP (at Market Prices) 2.2 2.9 4.4 4.3 3.6 4.5 3.4 3.8 4.3 5.0 5.2

GDP (at Factor cost) 2.2 2.9 3.4 2.3 1.6 2.3 1.7 3.5 4.3 4.8 5.2

Public GDP (at Factor Cost) 0.3 0.5 0.6 0.4 0.2 0.2 0.1 0.5 0.8 0.4 1.2

Private GDP (at Factor Cost) 1.9 2.4 2.8 1.9 1.4 2.1 1.7 3.1 3.3 4.4 3.9

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

Industry 0.0 0.2 -0.1 -0.6 -0.4 -0.7 -0.7 0.9 0.7 -0.5 1.5

Extractions -0.4 -0.6 -0.6 -0.7 -0.9 -0.9 -0.4 -0.1 0.2 -0.5 0.6

Oil -0.1 0.1 0.1 -0.1 -0.1 -0.4 -0.3 -0.4 -0.5 -0.3 -0.1

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

Other 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.1 0.0

Manufacturing 0.4 0.8 0.5 0.1 0.4 0.2 -0.3 1.0 0.5 0.0 1.0

Petroleum 0.1 0.1 -0.1 0.1 0.2 0.1 -0.5 0.0 0.1 0.0 0.0

Non-Petroleum 0.3 0.7 0.6 0.0 0.2 0.2 0.3 1.1 0.4 0.0 0.9

Services (excluding construction) 1.2 1.2 1.9 1.3 0.8 1.5 0.8 1.4 2.5 3.5 2.4

Construction 0.2 0.3 0.4 0.5 0.5 0.6 0.3 0.5 0.4 0.7 0.4

Real Estate Rental and Services 0.3 0.6 0.3 0.4 0.3 0.7 0.4 0.4 0.3 0.8 0.4

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

Finance 0.1 0.2 0.1 0.2 0.1 0.2 0.2 0.1 0.1 0.2 0.2

Insurance 1/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Communication 0.1 0.2 0.2 0.2 0.2 0.3 0.3 0.2 0.3 0.5 0.2

Tourism 0.2 -0.7 0.4 -0.7 -0.7 -0.9 -0.9 -0.3 0.9 0.6 0.8 Educational, Health Care, and Other Ser-vices 0.1 0.2 0.1 0.2 0.1 0.2 0.2 0.2 0.2 0.3 0.2

Utilities 2/ 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.0 0.1

Information 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Trade 0.4 0.7 0.5 0.7 0.5 0.8 0.7 0.8 0.5 0.9 0.5

Suez Canal 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.1

General Government 0.3 0.5 0.7 0.5 0.4 0.4 0.5 0.2 0.1 0.3 0.2

Source: Ministry of Planning.

1/ Includes Social Insurance.

2/ Includes Electricity, Water, and Sewage.


Table A4: Monetary Survey and Central Bank Balance Sheet (eop, in EGP billion)

June 2012 June 2013 June 2014 June 2015 June 2016 June 2017 Sept. 2017 Dec. 2017

Monetary Survey

Net Foreign Assets (NFA) 157.6 123.2 119.2 51.5 -87.4 61.1 188.6 214.1

Central Bank 76.1 38.2 37.4 25.3 -44.9 3.7 102.3 157.4

Commercial Banks 81.6 85.0 81.8 26.2 -42.5 57.4 86.3 56.8

Net Domestic Assets (NDA) 936.8 1172.9 1397.4 1714.0 2181.9 2857.1 2861.8 2988.5

Net Claims on Government 568.1 790.4 1038.7 1332.9 1602.7 1814.3 1821.2 1917.9

Net Claims on Public Economic Au-thorities

10.6 12.1 6.5 -41.5 52.2 165.4 179.7 208.3

Claims on Public Sector Companies 40.6 42.9 45.4 63.2 93.1 148.7 149.8 155.2

Claims on Private Sector 453.3 497.7 534.5 623.6 712.1 982.9 977.0 998.0

Net Other Items -135.8 -170.3 -227.7 -264.2 -278.2 -254.1 -266.1 -290.8

Broad Money (M2) 1094.4 1296.1 1516.6 1765.5 2094.5 2918.2 3050.4 3202.7

Local Currency Components (M2D) 908.4 1071.9 1280.5 1502.5 1770.7 2223.9 2385.1 2523.6

Currency Outside Banks 194.0 241.0 270.9 292.7 346.9 419.1 416.1 407.8

L/C Deposits 714.3 830.9 1009.7 1209.8 1423.8 1804.8 1969.0 2115.8

F/C Deposits 186.0 224.2 236.1 263.0 323.8 694.3 665.2 679.0

Central Bank Balance sheet

Net foreign assets (NFA) 76.1 38.2 37.4 25.3 -44.9 3.7 102.3 157.4

Foreign assets 92.2 101.7 115.8 148.1 149.9 551.5 630.5 643.0

Foreign liabilities -16.1 -63.4 -78.4 -122.8 -194.8 -547.8 -528.2 -485.6

Net domestic assets (NDA) 187.6 279.7 327.1 460.6 522.9 573.9 484.4 489.0

Net claims on government 175.9 310.2 433.5 585.3 658.2 740.3 741.9 682.4

Net claims on public economic author-ities

-10.5 -10.4 -14.2 -61.4 -38.8 -31.7 -22.6 -15.0

Claims on Banks 58.3 43.3 25.3 25.0 120.4 286.9 294.9 291.1

Bank's Deposits in F/C -25.0 -33.1 -34.3 -51.4 -60.8 -129.7 -129.8 -122.5

Open Market Operations /1 -3.1 -20.8 -44.3 0.0 -150.0 -467.9 -595.5 -560.5

Other items net -7.9 -9.5 -38.8 -37.0 -6.1 176.0 195.4 213.4

Reserve money (M0) /2 263.7 317.9 364.5 485.9 478.1 577.6 586.6 646.4

Currency Outside Banks 194.0 241.0 270.9 292.7 346.9 419.1 416.1 407.8

Reserves of banks 69.6 76.9 93.6 193.2 131.2 158.5 170.5 238.6

Cash at vaults 10.8 19.8 17.8 20.8 21.6 33.0 33.9 31.6

L/C Deposits 58.8 57.1 75.8 172.4 109.6 125.5 136.6 207.0

Source: Central Bank of Egypt

1/ Deposit auctions and deposit facility.

2/ M0 at end of June 2015 was affected by cancellation of deposit renewals at CBE due to unexpected announcement of national holiday on June 30,2015.


Table A5: Market Developments

Oct-16 Mar-17

Jun-17

Sep-17

Dec-17

Jan-18

Feb-18 1/

Latest Vs. Oct. 2016, in bps 2/

Policy Rate

Mid-Corridor Rate, % 12.25 15.25 17.25 19.25 19.25 19.25 19.25 700

Money Market

Interbank WAR,% 11.91 15.60 17.76 19.00 19.00 19.00 18.89 698

Interbank O/N rate, % 11.89 15.46 17.67 18.98 18.93 18.94 18.87 698

Interbank O/N average volume, EGP million 1,799 4,016 5,978 4,768 4,830 5,058 4,224 2,425

Interbank O/N share of total interbank volume, % 62.90 47.64 61.98 84.98 76.74 71.65 89.21 2631

Banking Sector

Deposit Rates, % 9.27 12.50 13.52 15.51 15.15 n/a n/a 588

Time, % 9.03 10.92 12.85 14.71 14.09 n/a n/a 506

Short-term Deposits (<1Y), % 8.98 10.86 12.82 14.73 14.17 n/a n/a 519

Other Deposits, % 10.53 12.76 13.82 14.44 13.21 n/a n/a 268

Saving, % 12.20 18.54 18.68 18.92 19.13 n/a n/a 693

< 3 years, % 11.66 19.86 19.91 19.94 19.97 n/a n/a 831

> 3 years, % 12.21 15.18 14.79 15.10 14.97 n/a n/a 277

Saving Accounts, % 7.98 10.39 10.61 8.96 8.76 n/a n/a 78

Lending Rates, % 14.38 16.82 18.16 19.05 19.39 n/a n/a 501

W.A. Business Lending Rates, % 14.96 16.75 18.32 19.00 19.51 n/a n/a 455

Short term business, % 14.92 17.03 17.80 18.97 19.65 n/a n/a 472

Long term business, % 15.08 16.14 18.88 19.17 19.21 n/a n/a 413

Retail, % 13.66 17.21 17.34 19.46 18.70 n/a n/a 505

Local Debt Market

T-Bill yield 1Y, % 16.45 19.15 20.35 18.66 18.22 17.63 16.55 10

W.a T-bill yield, % 15.79 19.32 20.37 18.78 18.67 18.19 17.08 129

W.a T-bond yield, % 17.22 17.16 18.29 15.81 15.79 15.40 14.43 -279

WACF, % 3/ 12.72 15.39 16.18 14.83 14.74 14.38 13.53 80

Spreads 3/

O/N interbank - Mid Corridor rate, % -0.36 0.21 0.42 -0.27 -0.32 -0.31 -0.38 -2

W.a. Lending rate - Mid Corridor rate, % 2.13 1.57 0.91 -0.20 0.14 n/a n/a -199

Mid Corridor - W. A Deposit Rate, % 2.98 2.75 3.73 3.74 4.10 n/a n/a 112

WACF - Mid Corridor rate, % 0.47 0.14 -1.07 -4.42 -4.51 -4.87 -5.72 -620

W.a. Yield Curve, % 1.14 -1.73 -1.66 -2.38 -2.30 -2.23 -2.12 -326

W.a. Lending rate - WACF, % 2.24 1.36 2.14 4.17 4.76 n/a n/a 253

W.a. Lending rate - T-bill yield, % 1.75 1.36 1.87 4.03 4.46 n/a n/a 271

W.a. Lending rate - W.A. Deposit rate, % 5.12 4.32 4.65 3.55 4.25 n/a n/a -87

Long term Business - Short term Business lend-ing, %

0.16 -0.89 1.08 0.20 -0.44 n/a n/a -59


1/ Up to February 15, 2018.

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

3/ Government securities' yields are adjusted for tax.


Abbreviations

bps Basis points

bbl Barrel of oil

CBE Central Bank of Egypt

CIC Currency in circulation outside the banking system

CPI Consumer price index

EGP Egypt Pound

EGX30 The Egyptian exchange benchmark index

eop End of period

F/C Foreign currency

FDI Foreign direct investment

FY Fiscal year

GDP Gross domestic product

GIR Gross international reserves

L/C Local currency

m/m Month on month

M0 Reserve money

M2 Broad money

M2D Local currency component of broad money

NEGS Net exports of goods and services

NEER Nominal effective exchange rate

NFA Net foreign assets

O/N Overnight

p.p. Percentage points

Q Quarter

REER Real effective exchange rate

UK United Kingdom

US United States

USD United States Dollars

w.a. Weighted average

WACF Weighted average cost of finance of the Treasury’s L/C marketable securities

y/y Year on year


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