Monetary Policy Report · Central Bank of Egypt Monetary Policy Report June 2017 Monetary Policy...

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

Central Bank of Egypt

Monetary Policy Report June 2017

Monetary Policy Committee

16


Foreword

The objectives of the economic reform are well on track. The switch to the liberalized ex-

change rate regime in November 2016 – while challenging given economic conditions at the

time – was orderly, and the unification of the exchange rate was successful. Since then, the

functioning of the foreign exchange market continued to improve, foreign investment flows

continued to increase, and the current account deficit continued to narrow. The new regime

inherently preserves these gains as it prevents real exchange rate misalignments.

Meanwhile, the fiscal deficit declined as a percent of GDP despite the increase in social

spending to ease the burden on vulnerable members of our society. Real GDP growth re-

mained resilient, expanding on average during the first half of 2017 at the highest pace since

2009/10, while the unemployment rate continued to decline to stand at 12.0 percent. Fur-

thermore, the Industrial Licensing Law and the Investment Law approved by the parliament

are important structural reforms to improve the business climate.

Nevertheless, these reforms did not occur without a cost, namely the temporary increase of

inflation to around 30 percent. Accordingly, after normalizing its relatively loose interest rate

stance by raising policy rates 300 basis points between December 2015 and October 2016,

the MPC acted decisively by raising policy rates another 700 basis points between November

2016 and July 2017, thereby tightening monetary conditions to contain second-round effects

of the significant supply-shocks, in line with its price-stability mandate. Consistently, mone-

tary policy implementation tightened liquidity conditions by increasing the maturity of ex-

cess liquidity absorption. For each path of the official rate there is an implied path for mone-

tary aggregates; and in the long run, there is a positive relationship between monetary ag-

gregates and the general price level.

It is important to highlight that low and stable inflation plays a dual role: On the one hand, it

preserves the purchasing power of the currency, on the other, it is a prerequisite to achieve

high levels of growth and employment, as it reduces premiums that lenders require for bear-

ing the risk of the loss in purchasing power of their principal, thereby lowering the overall

level of market interest rates. By contrast, high and volatile inflation complicates long-term

economic planning, leading resources to be spent to manage inflation risks rather than the

most productive activities. It also degrades the effectiveness of the market economy's fun-

damental means of conveying information as it makes it difficult to identify changes in rela-

tive prices in an environment with generalized price increases. Moreover, high inflation

shifts spending away from domestic-produced towards foreign-produced goods and ser-

vices, leading to severe nominal currency corrections at times to offset losses in competi-

tiveness. A case repeatedly observed in Egypt’s economic history.

Expectations and confidence are integral elements that impact the effectiveness of mone-

tary policy. Considering that, the MPC announced on May 21, 2017 for the first time its infla-

tion targets as well as the target achievement horizon, which is 13% (+/-3%) by 2018 Q4 and


single digits thereafter. Additionally, the regular publication of this monetary policy report is

aimed at increasing transparency about the Central Bank of Egypt’s assessment of initial

economic conditions as well as its inflation outlook, which remained consistent with the tar-

get path.

While current economic conditions remain challenging, it encourages and inspires us to see

a positive outlook for the Egyptian economy after several years with a negative outlook. We

will continue to closely monitor all economic, monetary and financial developments and will

not hesitate to use all the tools at our disposal to achieve macroeconomic stability at a low-

inflation equilibrium.

Tarek Amer Governor


Table of Content

THE INITIAL CONDITIONS……………………………………………………………………………………… PAGE 4

THE OUTLOOK………………………………………………………………………………………………….….. PAGE 20

APPENDIX: TABLES AND ABBREVIATIONS..……….………………………………………………..... PAGE 22

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 July 6, 2017.


Figure 1 Developments of International Commodity Prices (Index, 2005 = 100)

Source: International Monetary Fund.

Figure 2 Real GDP Growth in the global economy* (in %, y/y)

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

Figure 3 Inflation in the global economy* (in %, y/y)

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

The Initial Conditions

a) The global environment continued to pose

weak pressures on domestic prices given its

moderate recovery.

There has been some firming in international commodity

prices on annual basis during 2016 Q4 and 2017 Q1, driv-

en mainly by the increase in crude oil prices and to a

lesser extent by the increase in the prices of base metal

and food. Crude oil prices rose notably in December 2016

following OPEC’s meeting to coordinate production cuts

on November 30. Between March and June 2017, how-

ever, the annual increase in commodity prices receded,

as crude oil prices declined cumulatively by 15.7% on a

monthly basis, while metal prices declined cumulatively

by 12.7%. Food prices, on the other hand, increased mild-

ly by a cumulative 1.0% during the same period, despite

growing by 3.9% and 1.5% percent in May and June 2017,

respectively.

Meanwhile, global inflation and economic growth contin-

ue to maintain weak pressures on domestic prices, given

their moderate recovery, which supports the gradual

tightening of global policy rates.

Trade-weighted economic growth of Egypt’s external en-

vironment continued to recover on annual terms in 2017

Q1, registering a slightly higher pace compared to 2016

Q4. In advanced economies, output growth improved on

the back of better output outturns in the US, UK and euro

area, while growth weakened in Japan. In emerging

economies, output growth accelerated modestly, with

growth improving in Brazil, Russia and also China by a

lesser extent, while softening in India.

Trade-weighted headline inflation of Egypt’s external en-

vironment rose during the first five months of 2017 to

register an average annual rate of 2.2% compared to

1.8% in 2016, with increasing rates in advanced econo-

mies and narrowing rates in emerging economies. After

bottoming in September 2015, average annual inflation in

advanced economies recorded 1.9% during the first five

months of 2017 compared to 0.5% in 2016. Meanwhile,

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Advanced economies

Emerging economies (RHS)

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Advanced economines

Emerging economies


Figure 4 Egypt’s Annual Inflation Differential with its Main Trading Partners (in %, y/y)

Source: Bloomberg and Central Bank of Egypt calculations.

Figure 5 Trading Partner Currencies Against the USD (in %, y/y, +ve is depreciation)

Source: Bloomberg and Central Bank of Egypt calculations.

Figure 6 Non-hydrocarbon trade balance (in levels, USD billion)

Source: Central Bank of Egypt.

average annual inflation in emerging economies has been

generally on a downward trend since November 2015,

recording 2.9% during the first five months of 2017 com-

pared to 4.7% in 2016.

Egypt, on the other hand, witnessed an upturn in annual

inflation since May 2016 that was further amplified due

to the economic reform measures implemented in No-

vember 2016. However, the adverse impact of the higher

inflation-differential between Egypt and its trading part-

ners was more than offset by the annual nominal effec-

tive exchange rate (NEER) depreciation since 2016 Q2

and especially in 2016 Q4 and 2017 Q1 in light of the for-

eign exchange market liberalization and the associated

depreciation of the Egyptian pound, which resulted in a

significant boost to the competitiveness of the Egyptian

goods and services, as measured by the real effective ex-

change rate (REER). This occurred despite the annual de-

preciation of trading partner currencies vis-à-vis the USD.

Meanwhile, the annual REER depreciation lessened in

2017 Q2, mainly on the back of the lessening in annual

NEER depreciation, primarily as a result of the stability of

EGP/USD exchange rate on quarterly basis and to a lesser

extent the depreciation of Egypt’s main trading partners

against the USD. In addition to the above developments,

the slight increase in the inflation-differential between

Egypt and its main trading partners further supported the

ease in REER deprecation in 2017 Q2.

b) The external balance continued to benefit

from increased competitiveness gains and the

liberalized exchange rate system, easing in-

flationary pressures.

Egypt’s current account continued to witness an annual

improvement for the second consecutive quarter in 2017

Q1 supported by the depreciation of the Egyptian pound,

the ongoing recovery of Egypt's trading partners, in addi-

tion to other trade-balancing measures. The improve-

ment recorded USD2.1 billion, registering the highest on

record and bringing the deficit down to USD3.5 billion,

mostly due to the recovery of net exports of goods and

services (NEGS).

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Non-oil exports

Non-oil imports (RHS)


Figure 7 Oil trade balance (in levels, USD billion)


Figure 8 Private workers remittances (in %, y/y)

Source: Central Bank of Egypt & the International Monetary Fund.

Figure 9 Selected Financial Account indicators (in levels, USD billion)


NEGS recorded a lower deficit of USD7.1 billion in 2017

Q1, compared to USD9.1 billion a year earlier. Between

2010 Q3 and 2016 Q1, NEGS have been mostly deterio-

rating on annual basis with few exceptions. Since 2016

Q2, however, the deterioration lessened significantly,

turning into an improvement in 2017 Q1. The recovery

was largely driven by the annual increase in exports of

goods and services while imports increased marginally as

higher hydrocarbon imports, which coincided with higher

oil prices, were not fully offset by lower non-hydrocarbon

imports and lower services payments.

Remittances of Egyptians working abroad continued to

grow for the second consecutive quarter in 2017 Q1, re-

cording USD4.6 billion, the highest since 2015 Q2. Gener-

ally, the annual decline of nominal gross domestic prod-

uct (GDP) growth in Gulf Corporation Council countries

had contributed to the lower private remittances be-

tween 2015 Q3 and 2016 Q3. Leading indicators suggest

sustained rebound in remittances in 2017 Q2. Meanwhile

despite the annual increase in the net investment income

deficit in 2017 Q1, it was fully offset by the cumulative

annual decline during the previous two quarters.

The capital and financial account recorded a net inflow of

USD7.0 billion in 2017 Q1, compared to USD8.4 billion a

year earlier. The drop compared to the previous year was

mainly initiated by the absence of CBE external borrow-

ing as well as commercial banks outflows of USD3.6 bil-

lion, the highest since 2010 Q3, to recover their net for-

eign assets (NFA) position, which was facilitated by the

liberalized exchange rate regime.

Meanwhile suppliers credit as well as foreign direct in-

vestments declined in 2017 Q1 compared to a year earli-

er, which were partially offset by higher medium and

long-term loans. Higher medium and long term loans re-

flected the 2nd tranche of the World Bank’s (USD1 billion)

as well as the African Development Bank's (USD0.5 bil-

lion) loans.

Furthermore, the new regime contributed to improving

foreign investor appetite for Egyptian assets, supporting

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Oil imports

Oil exports

Brent oil price (USD/barrel, RHS)

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Nominal GDP growth in the GCC

Private remittances (RHS)

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FDIs (net)

Portfolio inflows (net)

CBE liab. and non-reserve assets+ commercialbanks NFA (flows)


Figure 10 FDIs ability to fund the current account deficit excluding grants

(in USD billion)


Figure 11 FDIs by sector disaggregation

(in percent of gross FDI inflows)


Figure 12 Fundamental balance* (in levels, USD billion)

Source: Central Bank of Egypt. *Calculated as: Current Account excluding net official transfers plus Foreign investments excluding bonds plus short term suppliers credit net.

the financial account. Net portfolio inflows rebounded

significantly in 2017 Q1 recording a net inflow of USD7.6

billion, compared to USD0.1 billion a year earlier. This

substantial improvement is mainly driven by USD4.0 bil-

lion Eurobond issuance in January 2017 with the remain-

ing inflows mainly in treasury bills and equities. Further-

more, leading indicators suggest continued improvement

in net portfolio inflows in 2017 Q2, supported by the

USD3.0 billion Eurobond issuance in late May 2017.

Consequently, Egypt’s current account deficit (excluding

net official transfers) continued to be fully funded by for-

eign investments (excluding bonds) in addition to short-

term net suppliers credit for the second consecutive

quarter, after recording mostly deficits over the past six

years. This fundamental surplus registered in 2017 Q1 the

highest since 2010 Q3, marking a remarkable turnaround

to reflect the success of the monetary policy measures.

Moreover, gross international reserves rose for the

eighth consecutive month to register USD31.3 billion in

June 2017, the highest since February 2011, improving

the coverage of next year's imports of goods and ser-

vices. Meanwhile, despite the projected increase in the

external debt to GDP ratio, it was magnified by the ex-

change rate depreciation given a less than 100% pass-

through of the depreciation of the currency to nominal

GDP if compared to the 100% pass-through to external

debt converted in EGP terms. Nonetheless, it is important

to highlight that external debt as a percent of CBE’s net

international reserves has been decreasing since 2016

Q2, with the decline steepening post the liberalized ex-

change rate system, supported by the CBE’s policy of no

intervention in the foreign exchange market that pre-

served CBE’s foreign assets compared to previous ex-

change rate system. Moreover, net international reserves

continued to be more than double the value of short

term external debt, i.e. notably higher than the minimum

reserve adequacy threshold of 100% according to the

Greenspan-Guidotti-Rule for emerging market econo-

mies.

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27.4 45.6 42.9 37.7

70.1 46.0 50.3 61.4

0102030405060708090

100

2014/15 2015/16 9M 15/16 9M16/17

Non-residents purchase of companiesOil & GasNon-residents purchases of real estateNewly issued capital/ capital increase

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Global financial crisis

Liberalization of the exchange rate regime

Managed exchange rate regime


Figure 13 External debt indicators

(in USD billion unless otherwise stated)


Figure 14 Labor Market Developments (in %, y/y, unless otherwise mentioned)

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

Figure 15 Sectoral contribution to annual change in employment (change in level, thousand person)

Source: Central Agency for Public Mobilization & Statistics.

c) Real Gross Domestic Product (GDP) growth

strengthened, while the growth structure con-

tinued to rebalance towards increasing sus-

tainability.

Annual real GDP at market prices grew by a revised 4.3%

in 2016/17 Q3, registering a similar growth rate com-

pared to the average of the previous two fiscal years, and

strengthening compared to the 3.8% and 3.4% recorded

in the preceding two quarters as well as compared to the

3.6% recorded in the respective quarter of the previous

year. In line with the continued economic expansion, the

unemployment rate in 2016/17 Q3 dropped to 12.0%

from 12.4% and 12.6% in the preceding quarters. The un-

employment rate has been gradually declining after peak-

ing at 13.4% in December 2013, coinciding with a drop in

average real unit labor cost since 2015.

Meanwhile, the recovery of the negative output gap

prevalent since 2011 reversed only slightly, while poten-

tial output growth is estimated to have begun to improve

following a prolonged period with supply constraints as

well as weakening trend capital accumulation and

productivity growth. Furthermore, while the aggregate

economic growth rate in 2016/17 Q3 was similar to

2014/15 and 2015/16, the expenditure structure re-

balanced towards higher sustainability. The contribution

of net exports improved, while domestic absorption

weakened primarily due to the significant slowdown in

consumption (private consumption; public consumption

by a lesser extent). At the same time, the contribution of

gross fixed investment improved. The resilience of real

GDP growth was supported by relatively looser monetary

conditions from the exchange rate depreciation.

During 2016/17 Q3, in line with nominal developments in

USD terms, NEGS registered the first positive contribution

in 2017 Q1 after registering negative contributions during

most of the period between 2010/11 and 2015/16. This

comes as a result of the increase in exports that out-

weighed the increase in imports.

Meanwhile, after private consumption was the main

- 0.5 1.0 1.5 2.0 2.5 3.0 3.5

01020304050607080

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Other Sectors

Banks

Monetary Authority

Central & Local Government

Total External Debt (% of GDP)

Total external debt (% of net international reserves, RHS)

-4

-2

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2

4

6

02468

10121416

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Unemployment rate (% of total labor force)

Labour Force (RHS)

Employment (RHS)

-1.5

-1

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Tho

usa

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s

Agriculture Industry

General Government Trade

Services Total


Figure 16 Real GDP Growth at market prices (in p.p., y/y)

Source: Ministry of Planning, Follow up & Administrative reform.

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


Figure 18 Contribution to industrial production index by sectors (in p.p., y/y)


driver of economic growth historically, supported by a

strong annual average growth of real claims to the

household sector in 2014/15 and 2015/16, private con-

sumption growth weakened with its average contribution

dropping between 2015/16 Q4 and 2016/17 Q3. This co-

incided with the continued annual drop in real average

wages affecting consumer purchasing power, and an av-

erage annual decline in real claims to the household sec-

tor.

The contribution of investment has been generally in-

creasing since 2014/15, due to both sectors, the private

and the public, with the latter by a higher extent.1 Public

investment was directed to electricity, Suez Canal, trans-

portation and storage, real estate, as well as natural gas

extractions. Private investment was supported by im-

proving average annual growth of real claims on the pri-

vate business sector in local currency since 2014/15 Q2,

and was mainly directed to real estate, agriculture, build-

ing and construction as well as trade. The upward trend

of private investment growth began to reverse in

2016/17 Q2, which coincided with the tighter interest

rate policy and the weakening average annual growth of

real claims on the private business sector in local curren-

cy in the subsequent quarter.

Table 1: Contribution to GDP growth (in p.p.)

03/04-09/10

1/

10/11-13/14

14/15-15/16

Sep-16

Dec-16

Mar-17

GDP-market prices 5.6% 2.3% 4.3% 3.4% 3.8% 4.3%

GDP-factor cost 5.9% 2.3% 2.8% 1.7% 3.5% 4.1%

Agriculture 0.5% 0.4% 0.3% 0.4% 0.4% 0.3%

Industry 1.6% 0.1% -0.3% -0.7% 0.9% 0.7%

Services 2.6% 1.1% 1.6% 0.8% 1.4% 2.5%

Trade 0.7% 0.4% 0.6% 0.7% 0.8% 0.5%

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

Gen. Government 0.3% 0.3% 0.6% 0.5% 0.2% 0.1%

Source: Ministry of Planning, Follow up & Administrative reform. 1/ for GDP at factor cost, this period begins from 2004/05.

At the sectoral level, real GDP at factor cost grew by 4.1%

in 2016/17 Q3, expanding at the highest rate since De-

cember 2014, and strengthening compared to the 3.5%

and 1.7% in the preceding two quarters as well as com-

pared to the 1.6% recorded in the respective quarter of

1 Using the same deflator for private and public investment as gross fixed capital formation.

1.8 1.7

-1.9 -0.9

3.7 3.8

3.2

5.6 2.3 4.3

-3-1135

200

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0

201

0/1

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3/1

4

201

4/1

5-1

5/1

6

Change in inventories Gross fixed investment

Net exports Private Consumption

Public Consumption GDP growth

0.7 0.4 0.6

2.6

1.1 1.6

5.9

2.3 2.8

-2

0

2

4

6

8

200

4/0

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09/1

0

201

0/1

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201

4/1

5-

15/1

6

G. Government Suez Canal Trade Services Industry AgricultureGDP growth

-30

-20

-10

0

10

20

30

Jan

-16

Ap

r-1

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Jul-

16

Oct

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Jan

-17

Ap

r-1

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Tourism ManufacturingConstruction Suez CanalTransportation ElectricityOil products Natural gasIndustrial Production


Figure 19 Tourism sector indicators (in %, y/y)

Source: Ministry of Tourism and Ministry of Planning, Follow up & Administrative reform.

Figure 20 Gross Domestic Investment and Claims on the PBS (real growth in %, y/y)

Source: Central Bank of Egypt calculations based on data from Ministry of Planning, Follow up & Administrative reform and Central Bank of Egypt.

Figure 21 Average Excess Liquidity 1/ (in EGP billions)

Source: Central Bank of Egypt. 1/ Adjusted for O/N lending facilities.

the previous year. Consequently, average real GDP

growth at factor cost during the first three quarters of

2016/17 was higher vis-à-vis all fiscal years since

2009/10. During 2016/17 Q3, growth was somewhat di-

versified with tourism, natural gas, trade, construction

and non-petroleum manufacturing as the main sectors

driving economic activity growth.

In 2016/17 Q4, leading activity indicators generally point

to the continuation of the upward trend. The industrial

production index broadly maintained its annual growth

rate in April 2017 compared to 2016/17 Q3, mainly driv-

en by tourism and non-petroleum manufacturing by a

lesser extent. Tourist arrivals increased by an annual rate

of 68.5% in April, higher than the average annual pace

registered in 2016/17 Q3.

Furthermore the Purchasing Managers’ Index (PMI) sur-

vey showed that new export orders have been increasing

since April 2017 amid greater interest from international

markets, as the exchange rate depreciation strengthened

Egypt’s competitiveness. Additionally, firms remain

strongly optimistic towards the full year outlook. Moreo-

ver, the index’s overall result improved in 2016/17 Q4

compared to its average level in 2016/17 Q3, despite still

pointing to a contraction in output.

Moreover, leading credit indicators suggest strengthen-

ing average annual growth of real claims on the private

business sector in local currency during 2016/17 Q4 com-

pared to the previous quarter, while credit to the house-

hold sector continued to weaken. This indicates a poten-

tial continuation of weakening consumption growth as

well as strengthening investment growth, given the his-

toric relationship between real growth of credit to the

private business sector and gross domestic investment.

d) Monetary conditions continued to tighten.

Looser monetary conditions from the exchange rate de-

preciation required a tighter stance on interest rates to

achieve inflation targets. Accordingly policy rates were

raised by 300 basis points and longer-term open market

-100-80-60-40-20

020406080

100120

De

c-1

0

Ma

r-1

2

Jun

-13

Se

p-1

4

De

c-1

5

Ma

r-1

7

Tourism real GDP

Tourist 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

Gross domestic investment (RHS)

0.0

100.0

200.0

300.0

400.0

500.0

Oct-

16

Nov-1

6

Dec-1

6

Jan

-17

Fe

b-1

7

Ma

r-1

7

Ap

r-17

Ma

y-1

7

Jun

-17

O/N Deposits Fixed-Rate Deposits

Variable Deposits


Figure 22 Overnight Interbank Market (in %, unless otherwise stated)


Figure 23 Average activity in the Interbank market (in EGP million, unless otherwise stated)


Figure 24 Interest Rates (in %)

Source: Central Bank of Egypt calculations.

operations were introduced. Moreover, to contain liquid-

ity increases the CBE and the Ministry of Finance agreed

to gradually phase out monetary financing of the fiscal

deficit and abide by the legal limits set in law no. 88 of

year 2003.

Nevertheless, despite the continued tightening of mone-

tary conditions post November’s interest rate hike, sup-

ported by the recovery of real interest rates, the reas-

sessment of monetary conditions revealed that condi-

tions were not tight enough in light of the inflation out-

look compared to the targeted disinflation path. This has

been due to stronger-than-expected second-round ef-

fects as well as economic activity and asset prices. At the

same time, the government implemented another round

of subsidy-reforms which posed further upside risks to

the inflation outlook, potentially impeding the targeted

tightening of real monetary conditions that is consistent

with achieving inflation targets. Accordingly, in addition

to the continuation of longer-term liquidity-absorbing

operations, the Monetary Policy Committee (MPC) decid-

ed that raising policy rates by an additional 400 basis

points over the two meetings in May 21, 2017 and July 6,

2017 was warranted, thereby bringing the overnight de-

posit and lending rate of the CBE's corridor of standing

facilities to 18.75% and 19.75%, respectively.

Liquidity tightening succeeded in bringing down excess

liquidity absorbed in maturities equal to or smaller than

seven days from 3.5% of GDP in November 2016 to 0.6%

of GDP in June 2017, leading excess liquidity absorbed in

maturities greater than seven days to record 96% of total

excess liquidity in spite of the increase of excess liquidity

in absolute terms. It also led some banks to recourse to

the CBE's overnight lending facility, which has been in-

creasingly tapped since April 2017.2

Furthermore, tighter liquidity conditions were reflected

in money markets which experienced notably higher

trading volumes. The share of overnight interbank vol-

umes has been increasing reflecting the banks’ prefer-

ence to trade liquidity over the shortest maturity. In the

2 Calculation based on working days.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

10.0

12.0

14.0

16.0

18.0

20.0

4-O

ct-

16

24-O

ct-

16

13-N

ov-1

6

3-D

ec-1

6

23-D

ec-1

6

12-J

an-1

7

1-F

eb-1

7

21-F

eb-1

7

13-M

ar-

17

2-A

pr-

17

22-A

pr-

17

12-M

ay-1

7

1-J

un

-17

21-J

un-1

7

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

O/N Deposit Policy Rate

O/N Lending Policy Rate

O/N Interbank Rate

Mid-Corridor Policy Rate

0.0

5.0

10.0

0

5,000

10,000

15,000

Nov-1

6

Dec-1

6

Jan

-17

Fe

b-1

7

Ma

r-1

7

Ap

r-17

Ma

y-1

7

Jun

-17

>1M Interbank Rate

< 1M Interbank Rate

1W Interbank Rate

< 1W Interbank Rate

O/N Interbank Rate

Liquidiy ≤ 7 days as % of GDP (RHS)

4.0

8.0

12.0

16.0

20.0

Jan

-16

Fe

b-1

6

Ma

r-1

6

Ap

r-16

Ma

y-1

6

Jun

-16

Jul-

16

Au

g-1

6

Se

p-1

6

Oct-

16

Nov-1

6

Dec-1

6

Jan

-17

Fe

b-1

7

Ma

r-1

7

Ap

r-17

Ma

y-1

7

Mid-Corridor Rate

O/N interbank Rate

Weighted Average Deposit Rate

Weighted Average Lending Rate

WACF (Tax adjusted)


Figure 25 Government's WACF (in %)


Figure 26 Local Debt Coverage Ratios (in times (X))


Figure 27 Evolution of Egypt International Bonds: Mid-yield to Maturity (in %)

Source: Bloomberg.

meantime, overnight interbank rates continued to hover

around the ceiling of the corridor of the CBE's standing

facilities since February 2017.

In the banking sector, the weighted average deposit rate

rose by 397 basis points between October 2016 and May

2017 compared to the CBE's policy rate hike by 300 basis

points, mainly due to higher saving certificate rates, par-

ticularly less than three years, followed by time deposits

rates while rates of saving accounts responded by a

weaker magnitude. Meanwhile, the weighted average

lending rate in the banking sector responded by 274 basis

points, with a higher transmission to retail lending vis-à-

vis business lending rates.3

In local debt markets, as of June 2017, tax-adjusted rates

of government securities rose by 345 basis points since

October 2016, while policy rates rose by 500 basis points.

Weighted average yields of T-Bills rose by 475 basis

points while yields of T-Bonds rose by 107 basis points.

The relatively weaker transmission of the CBE's hike to

the local debt market was chiefly due to two factors.

First, the relatively high-demand for government securi-

ties reflected by the coverage ratio, which remained

above 2.0, supported by net foreign portfolio inflows

amounting USD 7.9 billion between November 3, 2016

and June 30, 2017, which countered the impact of a

higher accepted-to-required ratio. Second, increasing net

external financing of the fiscal deficit, which contained

the need for domestic financing.

It is worth noting that in addition to USD2.7 billion IMF 1st

tranche, USD1.0 billion World Bank development finance

loan, USD0.5 billion loan from the African Development

bank and USD4.0 billion Eurobond issuance in January

2017, net external financing rose in May 2017 due to a

second successful Eurobond issuance of USD3.0 billion. It

is worth noting that during the second issuance Eurobond

yields dropped noticeably in the range between 55 bps

and 85 bps compared to first issuance, reflecting inves-

tors’ confidence.

3 Banking sector rates are subject to revision.

9.0

11.0

13.0

15.0

17.0

19.0

21.0

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6M

ay-1

6Ju

n-1

6Ju

l-1

6A

ug-

16

Sep

-16

Oct

-16

No

v-1

6D

ec-1

6Ja

n-1

7Fe

b-1

7M

ar-1

7A

pr-

17

May

-17

Jun

-17

WA T-bonds Yield

WA T-bills Yield

WACF (Tax adjusted)

Jan

-16

Fe

b-1

6M

ar-

16

Ap

r-16

Ma

y-1

6Jun

-16

Jul-

16

Au

g-1

6S

ep-1

6O

ct-

16

Nov-1

6D

ec-1

6Jan

-17

Fe

b-1

7M

ar-

17

Ap

r-17

Ma

y-1

7Jun

-17

0.0

1.0

2.0

3.0

4.0

5.0

6.0

T-Bills Coverage RatioT-Bonds Coverage Ratio

4.55.05.56.06.57.07.58.08.59.0

26

-Jan

-17

9-F

eb

-17

23

-Fe

b-1

7

9-M

ar-1

7

23

-Mar

-17

6-A

pr-

17

20

-Ap

r-1

7

4-M

ay-1

7

18

-May

-17

1-J

un

-17

15

-Ju

n-1

7

29

-Ju

n-1

7

5Y 10Y 30Y


Figure 28 Egypt’s Credit Default Swap (CDS) Spreads (in bps)

Source: Bloomberg.

Figure 29 T-Bonds minus T-Bills

(in bps, unless otherwise stated)

Source: Central Bank of Egypt calculations. 1/ Adjusted for tax.

Figure 30 Foreign Exchange Market Characteristics (in USD millions, unless otherwise stated)


Table 2: Government Securities, aop

Yields (%) 1/

Auction details

Oct-

16

Feb-

17

Mar-

17

Apr-

17

May-

17

Jun-

17

w.a. T-Bills 15.79 18.70 19.32 19.26 19.60 20.37

3 months 14.55 18.30 19.48 19.39 19.53 20.30

12 months 16.45 18.95 19.15 19.13 19.59 20.35

w.a. T-Bonds 17.22 16.79 17.16 17.12 18.01 18.29

Coverage Ratio (x)

Auction details

Oct-

16

Feb-

17

Mar-

17

Apr-

17

May-

17

Jun-

17

T-Bills 1.49 2.81 2.44 2.34 2.30 2.06

3 months 2.09 1.91 1.65 2.10 2.10 1.82

12 months 1.20 3.66 3.39 2.75 2.72 2.54

T-Bonds 1.45 2.65 2.51 2.13 2.18 3.08

Accepted ./. Required (x)

Auction details

Oct-

16

Feb-

17

Mar-

17

Apr-

17

May-

17

Jun-

17

T-Bills 0.95 1.03 1.06 1.27 1.16 1.16

3 months 1.04 1.02 0.99 1.17 1.22 1.00

12 months 0.92 1.06 1.17 1.42 1.11 1.41

T-Bonds 1.04 1.13 1.16 0.91 0.48 1.38


1/ Yields are not adjusted for tax.

Moreover, Egypt's sovereign credit risk premium re-

mained well below October 2016 figures despite the

slight increase witnessed in June, as reflected by the CDS

spreads. Nevertheless, 5 year CDS spread remained rela-

tively low compared to the majority peers with similar

ratings.

Given the recent developments in government securities,

the spread between the weighted average yields for T-

Bonds and T-Bills on a tax adjusted basis using primary

market data has been increasingly widening between No-

vember 2016 and January 2017, bottoming at negative

191 bps, before narrowing by 25 bps as of June 2017. the

inverted yield curve partly reflected higher demand for T-

bonds (3.1x) versus T-bills (2.1x), impacted by the low

issuance of T-bonds.

In the foreign exchange market, the EGP stabilized at

around EGP 18 per USD since March 2017, while the effi-

ciency of the foreign exchange market continued to im-

prove. This improvement was reflected by increasing in-

terbank market activity as well as the gradual narrowing

of the average client EGP/USD bid-ask spreads, which

100

200

300

400

500

600

4-O

ct-1

6

4-N

ov-

16

4-D

ec-1

6

4-J

an-1

7

4-F

eb-1

7

4-M

ar-1

7

4-A

pr-

17

4-M

ay-1

7

4-J

un

-17

CDS 1Y CDS 5Y CDS 10Y

-300

-200

-100

0

100

200

300

0

20

40

60

80

100

Jan

-16

Fe

b-1

6M

ar-

16

Ap

r-16

Ma

y-1

6Jun

-16

Jul-

16

Au

g-1

6S

ep-1

6O

ct-

16

Nov-1

6D

ec-1

6Jan

-17

Fe

b-1

7M

ar-

17

Ap

r-17

Ma

y-1

7Jun

-17

Share of accepted bids for T-bonds of total issuance , %

Share of accepted bids for T-bills of total issuance, %

T-Bonds - T-Bills WAY differential 1/ (RHS)

0

100

200

300

400

0

20

40

60

80

100

No

v-1

6

De

c-1

6

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Monthly Average FX Interbank Volumes, in USDmillion

Average Client EGP/USD Bid-Ask Spread, in bps(RHS)


Figure 31 Stock Market Indices 1/ (Index, November 1, 2016 = 100)

Source: Egyptian Stock Exchange and Central Bank of Egypt calculations. 1/ Equity performance calculated on EGP basis.

Figure 32 Contribution to M2 Growth (in p.p.)


Figure 33 Claims on the Private Sector (in %, y/y)


recorded 56 bps on average during June 2017, after peak-

ing in November 2016.

Table 3: 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-17 392.2 1,112.9 -0.02 1,505.1

Apr-17 136.5 1,257.7 2.0 1,396.2

May-17 40.8 1,772.4 27.5 1,840.7

Jun-17 25.4 1,629.9 22.3 1,677.6

Total 970.7 7,877.2 55.7 8,903.6


1/ Based on trading dates.

* Since November 3, 2016.

Meanwhile, the EGX30 benchmark index continued to

show solid performance post the economic reform

measures in November 2016, registering 13,509 points

on average in June 2017 (62.9% increase from October

2016) an all-time high. The robust performance was sup-

ported by foreign investment amounting to USD 971 mil-

lion during the period. Furthermore, On June 28, 2017,

total market capitalization recorded EGP 693.5 billion,

the highest since September 2008. During 2016/17, total

market capitalization averaged an estimated 16.0% of

GDP, compared to 15.7% in 2015/16.

Moreover, market analysts’ suggest that real asset prices,

reflected by unit prices in the real estate sector, have in-

creased on inflation adjusted basis during the first half of

2017. Nevertheless, despite relatively robust demand,

especially for residential vis-à-vis commercial real estate,

many developers reportedly started introducing more

lenient and efficient payment plans to adjust to potential

liquidity shortages.

e) Broad money (M2) growth increased mainly

due to the recovery of net foreign assets as

well as higher claims on the private sector4.

4 All foreign currency components were recalculated excluding revaluation

90.0

110.0

130.0

150.0

170.0

190.0

210.0

1-N

ov-

16

16

-No

v-1

6

1-D

ec-1

6

19

-Dec

-16

4-J

an-1

7

19

-Jan

-17

6-F

eb

-17

21

-Fe

b-1

7

8-M

ar-1

7

23

-Mar

-17

9-A

pr-

17

27

-Ap

r-1

7

15

-May

-17

30

-May

-17

14

-Ju

n-1

7

EGX30 Index EGX70 Index

EGX100 Index

0

5

10

15

20

25

-15

-10

-5

0

5

10

15

20

25

30

Mar-08Mar09

Apr-09Dec-10

Jan-11Jun-13

Jul-13Mar-14

Apr-14Jun-15

July-15Oct-16

Nov-16May-17

CBE NFA Banks NFA

CBE NCG Banks NCG

NCPEA CPSCPSC M2 growth (RHS)

Political instability

FX liberalization

Financial crisis

-20

-10

0

10

20

30

40

Jan

-02

Dec-0

3

Nov-0

5

Oct-

07

Se

p-0

9

Au

g-1

1

Jul-

13

Jun

-15

Ma

y-1

7

L/C claims on private sector

F/C claims on private sector


Figure 34 Composition of L/C Loans to PBS between July 2016 and April 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.

Figure 35 Share of total change in new L/C lending to PBS between July 2016 and April 2017* (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 36 Fiscal Sector Developments (in % of GDP)

Source: Ministry of Finance *FY 2015/16 is pre-actual, FY 2016/17 is projected and FY 2017/18 is budgeted.

M2 growth including revaluation effects averaged 38.8%

between November 2016 and May 2017. Excluding reval-

uation effects, average growth of M2 narrows to 20.4%

during the same period, compared to an average of

15.9% between July and October 2016 and 16.6% during

2015/16. Data up to 2017 Q1 show that the inflationary

pressures from higher money growth were dampened by

the annual contraction of velocity, defined as the fre-

quency at which the same unit of currency is used to pur-

chase domestically produced goods and services.

The increase in M2 growth was mainly driven by the re-

versal of the negative contribution of net foreign assets

of the CBE and commercial banks to a positive contribu-

tion since March 2017 and April 2017 for the first time

since February 2011 and July 2011, respectively. This was

supported by the liberalized foreign exchange regime

that preserved the CBE's foreign assets, improved bal-

ance of payment fundamentals and facilitated the financ-

ing of the fiscal deficit via net external as well as non-

bank financing by foreigners.

Moreover, the average contribution of claims on the pri-

vate sector to M2 growth rose between November 2016

and May 2017, compared to the period between July and

October 2016 and 2015/16, driven by claims in local cur-

rency while claims in foreign currency maintained its

negative contribution which began since March 2016.

Sectoral data up to April 2017 show that the increase in

new local currency lending since July 2016 has been

mainly provided to the industrial sector, followed by the

services, trade and agricultural sector. Within the indus-

trial sector new lending was mainly provided to other

manufacturing, electrical industries and electronics, oil

and gas, food and beverage, chemicals and construction

materials sub-sectors. Within the services sector, new

lending was provided to the non-oil logistics, communica-

tion, and construction sub-sectors.

In the meantime, the contribution of net claims on the

government to M2 growth decreased significantly during

the same period, compared to the period prior to the lib-

18.6

17.2

12.3

12.2

9.8

8.7

9.1

8.5

8.0

8.8

5.8

5.7

0 10 20 30 40 50 60 70 80 90 100

Jul.16

Apr.17

Wholesale Trade Non-oil logisticsConstruction Materials Food & BeverageOther Manufacturing ChemicalsConstruction Financial ServicesTourism Real EstateCommunication AgriculturePharmaceuticals Oil & GasElectronics & Industrial Goods TextilesAutomobiles TransportationOil logistics

12.5 12.0 11 9.7 9 8 -10

-15 -5 5 15 25 35 45 55 65 75 85 95 105115

%

Wholesale Trade Non-oil logisticsOther Manufacturing Electronics & Industrial GoodsCommunication Oil & GasConstruction Food & BeverageReal Estate ChemicalsConstruction Materials AutomobilesTransportation PharmaceuticalsTextiles TourismOil logistics Financial ServicesAgriculture

-14

-13

-12

-11

-10

-9

-8

-40

-20

0

20

40

201

2/1

3

201

3/1

4

201

4/1

5

201

5/1

6

201

6/1

7

201

7/1

8

ExpendituresRevenuesOverall Deficit (RHS)

Increase


Figure 37 Net domestic and external debt of Govern-ment (in % of GDP)


Figure 38 Financing sources in FY 2017/18 (In % of the overall budgeted fiscal deficit)

Source: Ministry of Finance.

Figure 39 Developments of CIC Outside the Banking System (in %, y/y)


eralization of the exchange rate regime, supported by the

increasing share of net external as well as non-bank fi-

nancing of the fiscal deficit. It is important to highlight

that fiscal consolidation regained momentum in 2016/17,

with the overall fiscal deficit falling to 10.9% of GDP com-

pared to 12.5% a year earlier, with both lower expendi-

tures and higher revenues as a share of GDP contributing

to the drop.

Table 4: CBE Overdraft financing (EGP billion)

2013/14 2014/15 2015/16 2016/17 July 6

th,

2017

O/D 1/ 134.5 249.1 203.1 0.0 0.0

CBE O/D legal limit 30.6 37 42.4 47.1 53.0

1/ outstanding Stock end of period.


Expenditures declined as a share of GDP in light of con-

tained nominal wage growth, which led to a lower wage

bill as a share of GDP. Moreover, the fuel and electricity

subsidy reforms in 2016/17 limited the deterioration in

energy subsidies as a share of GDP due to higher interna-

tional oil prices as well as the exchange rate depreciation.

Revenues share of GDP increased driven equally by high-

er tax and non-tax revenues as a share of GDP, supported

by the government’s fiscal revenue measures such as the

introduction of the value added tax at a higher rate vis-à-

vis the sales tax.

Meanwhile, the contribution of net claims on public eco-

nomic authorities to M2 growth decreased on average

between November 2016 and May 2017 compared to the

period between July and October 2016. This occurred de-

spite a significant increase in net claims on public eco-

nomic authorities due to commercial banks in May 2017

given a favorable base effect from May 2016.

Regarding the components of broad money, currency in

circulation as percent of local currency deposits in M2

resumed its downward trend between November 2016

and May 2017, recording an average of 23.2%, following

an interruption between March and October 2016. This is

by 1.8 p.p. higher than the average of 21.4% recorded

over the ten years prior to January 2011, yet by 7.3 p.p.

lower than the peak recorded in August 2013. The con-

0

20

40

60

80

100

120

Se

p-1

1

Ma

r-1

2

Se

p-1

2

Ma

r-1

3

Se

p-1

3

Ma

r-1

4

Se

p-1

4

Ma

r-1

5

Se

p-1

5

Ma

r-1

6

Se

p-1

6

Ma

r-1

7

External debtNet domestic debt

Domestic financing

66% Eurobond

s 14%

International

organization 15%

Other external financing

5%

0

5

10

15

20

25

30

35

Jan

-02

Dec-0

3

Nov-0

5

Oct-

07

Se

p-0

9

Au

g-1

1

Jul-

13

Jun

-15

Ma

y-1

7

CIC to LC deposits in M2 CIC to M2


Figure 40 Developments in Foreign currency deposits (in %, y/y, unless otherwise stated)


Figure 41 Contribution to adjusted reserves money 1/ (M0 in %, y/y, otherwise in p.p.)

Source: Central Bank of Egypt. 1/ Reserve money adjusted by standing facilities and fixed rate deposit auctions.

Figure 42 Developments of the Inverse Money Multipli-er and adjusted M0 1/ (in %)

Source: Central Bank of Egypt. 1/ Reserve money adjusted by standing facilities and fixed rate deposit auctions.

tinuous drop in this ratio signals the gradual normaliza-

tion of money holding behavior.

The drop of the ratio was supported by the tighter inter-

est rate policy by the CBE and the contemporaneous in-

troduction of 20% and 16% 1.5-year and 3-year saving

certificates by commercial banks in early November

2016, respectively, which supported a substantial in-

crease in local currency deposits. It is worth mentioning

that the introduction of these certificates led to a shift in

the structure of the private sector local currency deposits

to be dominated by deposits less than three years since

November 2016, after being dominated by deposits more

than three years up to October 2016.

Historically, the composition of deposits has been in-

creasingly leaning towards local currency vis-à-vis foreign

currency with few exceptions during periods of dollariza-

tion. Under the managed exchange rate regime, the slope

of the downward trend of the dollarization ratio sharp-

ened since the CBE’s rationing of foreign currency provi-

sions to banks and the introduction of foreign exchange

controls in January 2013. This led to the emerge of paral-

lel foreign exchange markets, which led the annual

growth of foreign currency deposits (excluding revalua-

tion effects) to bottom at negative 4.7% in January 2014.

Following the increase in interest rates on local currency

deposits and the liberalization of the Egyptian pound, an-

nual growth of foreign currency deposits excluding reval-

uation effect remained muted between November and

December 2016. However since January 2017, annual

growth of foreign currency deposits started to recov-

er reaching 4.4 percent in May 2017, the highest since

October 2016. This recovery coincided with a slight uptick

in the dollarization ratio excluding revaluation effects in

March 2017, suggesting increased confidence in the

banking system following the unification of the exchange

rates.

In the meantime, reserve money adjusted by deposits in

the CBE's overnight deposit facility and fixed rate deposit

auctions dropped to 2.3% on average between November

-15

-10

-5

0

5

10

15

20

25

0

10

20

30

40

50

60

70

Jan

-02

Se

p-0

2M

ay-0

3Jan

-04

Se

p-0

4M

ay-0

5Jan

-06

Se

p-0

6M

ay-0

7Jan

-08

Se

p-0

8M

ay-0

9Jan

-10

Se

p-1

0M

ay-1

1Jan

-12

Se

p-1

2M

ay-1

3Jan

-14

Se

p-1

4M

ay-1

5Jan

-16

Se

p-1

6M

ay-1

7

Dollarization ratio (F/C deposits to deposits in M2)

F/C deposits (RHS)

-20

0

20

40

60

80

100

Ma

r-1

3

Au

g-1

3

Jan

-14

Jun

-14

Nov-1

4

Ap

r-15

Se

p-1

5

Fe

b-1

6

Jul-

16

Dec-1

6

Ma

y-1

7

-30

-10

10

30

50

70

90

Dep. Auc. 7 days

O/N Deposits

L/C Deposits of commercial Banks

Currency in circulation outside banks

Adjusted M0 (y/y, RHS)

-40-30-20-100102030405060

2022242628303234363840

Jan

-09

No

v-0

9

Se

p-1

0

Jul-

11

Ma

y-1

2

Ma

r-1

3

Jan

-14

Nov-1

4

Se

p-1

5

Jul-

16

Ma

y-1

7

Adjusted M0 to M2D

Adjusted M0 (y/y, RHS)


Figure 43 Structure of deposits in local currency by ma-turity in M2 (in %)


Figure 44 Headline and Core Inflation 1/ (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.

Figure 45 Monthly Contribution to Headline Inflation (in p.p.)

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

2016 and May 2017, compared to an average of 23.0%

between July and October 2016, reflecting tightening li-

quidity conditions in line with the tighter monetary policy

stance. This was mainly driven by the significant drop in

short term excess liquidity from an average of 3.5% of

GDP in November 2016 to an average of 0.6% of GDP in

June 2017.

Consequently, the money multiplier measured as the ra-

tio between local currency components in M2 and re-

serve money as defined above continued to increase,

mainly driven by the continued absorption of excess li-

quidity via longer-term deposit auctions and the narrow-

ing of currency in circulation as percent of local currency

deposits in M2.

f) Cost-push pressures are gradually fading, yet

underlying inflation remained relatively ele-

vated.

Annual headline inflation fell in May 2017 to 29.7% from

31.5% in April 2017, recording the first decline since Oc-

tober 2016, while monthly headline inflation has been

declining since February 2017 to register 1.7% in May

2017 after averaging 4.0% between November 2016 and

January 2017. The drop in annual inflation was due to the

combination of a favorable base effect stemming from

the exchange rate depreciation in March 2016 that

strongly impacted prices in May 2016, as well as the rela-

tive moderation of monthly inflation.

While the impact of transitory cost-push factors on items

that regularly witness price-increases has largely passed-

through, items that witness delayed or seasonal con-

sumption such as pilgrimage services in May 2017 con-

tinue to exhibit the impact. Excluding effects of supply

shocks, underlying inflation is somewhat higher than con-

sistent with achieving the CBE’s target, affected by price-

setting behavior consistent with annual inflation of 10%

historically that has been further magnified recently due

to somewhat stronger-than-expected second-round ef-

fects of the economic reform measures as well as eco-

nomic activity. This has been reflected especially in food

components of core consumer as well as producer prices.

0

20

40

60

80

100

No

v-1

5

Jan

-16

Ma

r-1

6

Ma

y-…

Jul-

16

Se

p-1

6

No

v-1

6

Jan

-17

Ma

r-1

7

Ma

y-…

Earmarked deposits Deposits less than 3 years

Deposits more than 3 years Current deposits

0

4

8

12

16

20

24

28

32

0

4

8

12

16

20

24

28

32

Ma

y-1

3

Se

p-1

3

Jan

-14

Ma

y-1

4

Se

p-1

4

Jan

-15

Ma

y-1

5

Se

p-1

5

Jan

-16

Ma

y-1

6

Se

p-1

6

Jan

-17

Ma

y-1

7

Headline CPI (100%)

Core CPI (74.43%)

-2

-1

0

1

2

3

4

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

Ma

y-1

7

Regulated Items Retail Prices

Services Fruits & Vegetables

Core Food Prices


Figure 46 Diffusion Index: Headline Inflation by Number of Items that Experienced Price Changes (in %)


Figure 47 Monthly Contribution to Producer Price Index (in p.p.)


Figure 48 Tradable Goods and Egypt’s Nominal Effective Exchange Rate (in %, y/y)


Furthermore, after bottoming at 9.6% in March 2017, the

share of the items that experienced price increases in the

CPI basket has been rising to record 15.0% in May 2017.

While the gradual decline of monthly inflation was broad-

based with the contribution of retail items and services

excluding pilgrimage diminishing, and the contribution of

food items as a total moderating, the contribution of core

food prices has been inching up somewhat in April and

May 2017 to represent the main driver of food inflation,

after being additionally strongly impacted by volatile food

prices. Against this background, monthly core inflation

rose to register 2.0% in May 2017 compared to 1.1% in

April and 1.0% in March. In the meantime, annual core

inflation continued to be supported by favorable base

effects since March 2017, dropping to 30.6% in May from

33.1% in February.

Prices of red meat have been continuously increasing

since May 2016. Furthermore, notable price increases in

April and May 2017 were additionally witnessed in items

such as poultry, fish and sea food, dried fruits, cheese

and tea, partly reflecting seasonal effects due to Rama-

dan.

Producer prices excluding regulated, volatile food and

crude oil items, also increased between March and May

2017 by an average monthly rate of 1.7%, which repre-

sents 63% of the increase in aggregate producer prices,

mainly on the back of food items.

Moreover, international food prices using domestic CPI

weights rose by 21.9% (y/y) in May 2017, while domestic

core food prices rose by 42.2% (y/y). The higher magni-

tude domestically is partly driven by the significant ex-

change rate depreciation. Especially May (4.0% m/m),

November (6.4% m/m), December 2016 (7.0% m/m) and

January 2017 (8.1% m/m) witnessed the largest increas-

es, driven by the significant depreciation of the NEER in

March (9.5% m/m), April (6.5% m/m), November (76.6%

m/m) and December 2016 (15.2% m/m).

-40

-20

0

20

40

60

Ma

y-0

8

Ma

y-0

9

Ma

y-1

0

Ma

y-1

1

Ma

y-1

2

Ma

y-1

3

Ma

y-1

4

Ma

y-1

5

Ma

y-1

6

Ma

y-1

7

Price increases

Price decreases

Net

-4

-2

0

2

4

6

8

Ma

y-1

5

Jul-

15

Se

p-1

5

No

v-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

Ma

y-1

7

Regulated Items

Crude petroleum extraction

Volatile Food items

PPI excluding volatile food, crude petroleumextraction and regulated items

-50

0

50

100

150

0

10

20

30

40

50

Ma

y-1

1

Nov-1

1

Ma

y-1

2

No

v-1

2

Ma

y-1

3

Nov-1

3

Ma

y-1

4

Nov-1

4

Ma

y-1

5

Nov-1

5

Ma

y-1

6

Nov-1

6

Ma

y-1

7

NEER (actual depreciation =increase, RHS)

Tradables


The Outlook

On May 21, 2017, the CBE announced its inflation target of 13% (+/- 3%) in 2018 Q4 and sin-

gle digits thereafter. The announcement is part of the CBE's effort to anchor inflation expec-

tations for the medium-term, which represents an integral element to achieve low and sta-

ble inflation. Furthermore, it emphasizes the CBE's commitment to its price stability man-

date. As the liberalized exchange rate regime inherently prevents real exchange rate misa-

lignments, the disinflation path was set to gradually narrow the inflation differential be-

tween Egypt and its trading partners, thereby reducing competitiveness losses that induce

depreciation pressures on the nominal exchange rate.

Given the strengthening of demand indicators, in addition to the strong second-round ef-

fects of the economic reform measures implemented in November 2016, and in anticipation

of the second-round effects of the subsidy-reform measures implemented in June and July

2017, the MPC had raised the CBE's key policy rates to achieve the targeted disinflation path

over the specified horizon. Consistent with the tighter monetary policy stance, annual re-

serve money (M0) growth adjusted by overnight deposits and seven-day deposit auctions

shrunk to reflect the absorption of excess liquidity via longer-term operations

With consideration of the above, annual headline inflation is expected to pick up in 2017 Q3

before gradually declining to reach the CBE's target, supported by favorable base effects and

tightening monetary conditions. Over the short term, monetary conditions are expected to

be affected by higher real interest rates using forward looking inflation, supported by previ-

ous policy rate increases, in addition to the anticipated appreciation of the real exchange

rate due to unfavorable inflation differentials.

Figure 49 Inflation Forecast (in %, y/y)

Source: Central Bank of Egypt. 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%.

0

5

10

15

20

25

30

35

40

Ma

r-1

6

Jun

-16

Se

p-1

6

Dec-1

6

Ma

r-1

7

Jun

-17

Se

p-1

7

Dec-1

7

Ma

r-1

8

Jun

-18

Se

p-1

8

Dec-1

8

90% 70% 50% 30% confidence interval


In the meantime the recovery of net exports of goods and services as well as domestic and

foreign investments are expected to complement consumption as growth engines by ex-

penditure, while the recovery of tourism, non-petroleum manufacturing as well as extrac-

tions, particularly natural gas, are expected to support economic growth by sector.

From the fiscal side, the government’s recently announced 2017/18 budget aims at repriori-

tizing expenditures while increasing revenues as percent of GDP. It is targeting a reduction of

the overall fiscal deficit to 9.0% of GDP in 2017/18 as well as a primary surplus of 0.3% of

GDP, the first surplus since 2002/2003.

Underpinning this outlook are global assumptions. Crude oil prices are projected to increase

to USD 55 per barrel in 2017/18, while food prices relevant to Egypt's consumption basket

are forecasted to increase somewhat due to several items. Meanwhile, the moderate recov-

ery of global inflation and economic growth is expected to continue maintaining weak pres-

sures on domestic prices, while supporting the gradual tightening of global policy rates.

Current policy rates are estimated to be consistent with achieving inflation targets. Never-

theless, there are several risks surrounding the baseline inflation outlook, notably the evolu-

tion of inflation expectations, demand-side pressures as well as the timing and/or magnitude

of any subsidy-reform measures and their second-round effects. The materialization of such

risks could lead to a stronger than projected loosening or tightening of the MPC's stance to

ensure that the inflation outlook is consistent with the targeted disinflation path.

The CBE firmly believes that low and stable inflation plays a dual role. On the one hand, it

minimizes the loss in the purchasing power of the currency, on the other hand, it is a pre-

requisite to achieve high levels of economic growth and employment.


Appendix: Tables and Abbreviations


Table A1: CPI Contribution

Weights Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Monthly Contributions to Headline CPI Inflation (in pp) Headline 100.0 1.2 1.7 4.8 3.1 4.1 2.6 2.0 1.7 1.7

Regulated Items 18.7 0.3 0.2 1.0 0.0 0.1 0.1 0.3 0.0 0.0 Fresh Fruits & Vegetables 6.9 0.0 -0.4 0.2 0.1 0.5 0.7 1.0 0.9 0.3 Core CPI 74.4 0.9 1.9 3.7 3.0 3.5 1.8 0.7 0.8 1.4

Food Prices 31.1 0.4 1.1 2.2 2.4 2.9 1.4 0.5 0.7 0.8 of which

Poultry & Red Meat 10.0 0.2 0.2 0.5 0.7 0.8 0.7 0.4 0.3 0.5 Food excl. Poultry & Red Meat 21.1 0.2 0.9 1.6 1.7 2.1 0.7 0.1 0.4 0.3

Retail Prices 14.5 0.3 0.3 1.0 0.2 0.5 0.3 0.0 0.0 0.0 Services 28.9 0.3 0.5 0.5 0.4 0.1 0.2 0.1 0.1 0.6

Annual Contributions to Headline CPI Inflation (in pp) Headline 100.0 14.1 13.6 19.4 23.3 28.1 30.2 30.9 31.5 29.7

Regulated Items 18.7 2.4 2.3 3.4 3.5 3.6 3.5 3.7 3.7 3.2 Fresh Fruits & Vegetables 6.9 2.3 0.7 1.9 2.2 3.3 4.0 5.0 5.7 5.4 Core CPI 74.4 9.5 10.6 14.1 17.6 21.2 22.8 22.2 22.1 21.1

Food Prices 31.1 4.8 6.0 8.3 11.2 14.3 15.2 15.0 15.2 14.4 of which

Poultry & Red Meat 10.0 1.5 1.9 2.4 3.2 3.9 4.5 4.7 4.9 4.9 Food excl. Poultry & Red Meat 21.1 3.3 4.1 5.9 8.0 10.3 10.8 10.3 10.3 9.5

Retail Prices 14.5 2.0 2.2 3.1 3.2 3.7 4.1 3.9 3.6 3.0 Services 28.9 2.6 2.4 2.7 3.2 3.3 3.4 3.3 3.3 3.6

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


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

Date

Fiscal Years 2015/2016*(1) 2016/2017*

2011/20

12

2012/20

13

2013/20

14

2014/20

15

2015/2016*/(1)

Q1 Q2 Q3 Q1 Q2 Q3

Trade Balance -34.1 -30.7 -34.2 -39.1 -38.7 -10.0 -9.9 -10.0 -8.7 -9.2 -9.2

Export proceeds ** 25.1 27.0 26.0 22.2 18.7 4.7 4.4 4.3 5.3 5.2 5.5

Petroleum exports 11.2 13.0 12.4 8.9 5.7 1.7 1.5 1.1 1.5 1.4 1.7

Other exports 13.8 14.0 13.7 13.4 13.0 3.1 2.9 3.2 3.7 3.8 3.8

Import payments** -59.2 -57.7 -60.2 -61.3 -57.4 -14.7 -14.3 -14.2 -13.9 -14.4 -14.7

Petroleum imports -11.8 -12.1 -13.2 -12.4 -9.3 -2.8 -2.6 -1.6 -2.6 -2.5 -3.1

Other imports -47.4 -45.6 -46.9 -48.9 -48.1 -11.9 -11.6 -12.6 -11.3 -11.9 -11.6

Services Balance 12.1 12.4 8.3 10.7 6.5 2.8 1.8 0.9 1.4 1.0 2.0

Receipts 20.6 22.0 17.4 21.8 16.1 5.0 4.0 3.4 3.8 3.5 4.2

Transportation 8.6 9.2 9.5 9.9 9.5 2.6 2.4 2.2 2.3 2.0 2.3

Of which: Suez Canal dues 5.2 5.0 5.4 5.4 5.1 1.4 1.3 1.2 1.3 1.2 1.2

Travel ( tourism revenues ) 9.4 9.8 5.1 7.4 3.8 1.7 1.0 0.6 0.8 0.8 1.3

Payments 8.6 9.6 9.2 11.1 9.5 2.2 2.2 2.6 2.4 2.5 2.2

Travel 2.5 2.9 3.0 3.3 4.1 0.8 0.9 1.2 1.1 0.6 0.4

Investment Income Balance -6.5 -7.4 -7.3 -5.7 -4.5 -1.1 -1.3 -0.7 -1.1 -1.1 -1.0

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

Payments 6.7 7.6 7.5 5.9 4.9 1.2 1.4 0.8 1.2 1.2 1.1

Of which: Interest paid 0.5 0.8 0.7 0.6 0.8 0.2 0.2 0.1 0.2 0.3 0.3

Current Transfers 18.4 19.3 30.4 21.9 16.8 4.3 4.0 4.1 3.4 4.6 4.6

Private (net), 17.8 18.4 18.4 19.2 16.7 4.3 3.9 4.1 3.4 4.6 4.6

Official (net) 0.6 0.8 11.9 2.7 0.1 0.0 0.0 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 -5.7 -5.0 -4.7 -3.5

Capital & Financial Account 1.0 9.8 5.2 17.9 21.2 1.6 4.5 8.4 7.1 10.5 7.0

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

Financial Account 1.1 9.9 5.0 18.1 21.3 1.7 4.6 8.4 7.1 10.6 7.1

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

Direct investment in Egypt (net) 4.0 3.8 4.2 6.4 6.9 1.4 1.8 2.8 1.9 2.4 2.3

Portfolio investment abroad -0.1 0.0 0.1 0.0 0.2 0.0 0.1 0.0 0.0 0.1 0.0 Portfolio investment in Egypt

(Net)# -5.0 1.5 1.2 -0.6 -1.3 -1.4 -0.2 0.1 -0.8 1.1 7.6

Of which: Bonds 0.1 2.3 0.9 -1.1 -1.4 -1.4 0.0 0.0 -0.8 0.0 4.0

Other Investments (Net) 2.6 4.8 -0.2 12.5 15.6 1.7 3.0 5.6 6.1 7.0 -2.8

Net Borrowing 0.2 1.2 0.2 5.0 7.1 0.8 3.0 1.5 1.3 4.7 1.2 Medium- and Long-Term

Loans (net) -0.3 0.8 -1.0 -0.5 -0.2 -0.6 0.2 0.2 0.3 2.7 1.2 Medium- and Long-Term

Suppliers' Credit 0.0 0.0 -0.1 0.3 1.5 0.1 0.1 0.5 0.6 0.3 0.0 Short term Suppliers’ Credit

(net) 0.6 0.4 1.2 5.3 5.8 1.4 2.6 0.8 0.5 1.7 0.0

Other Assets 1.2 -2.1 -2.3 -1.2 -3.5 0.2 -3.2 -1.3 -0.2 -2.2 -3.2

Other Liabilities 1.2 5.7 1.9 8.7 12.0 0.7 3.2 5.4 5.0 4.5 -0.8

Net Errors & Omissions -2.2 -3.1 -0.9 -2.1 -4.2 -1.3 1.1 -3.0 -0.2 -0.7 0.5

Overall Balance -11.3 0.2 1.5 3.7 -2.8 -3.7 0.3 -0.2 1.9 5.1 4.0 Change in CBE Reserve Assets (In-crease -) 11.3 -0.2 -1.5 -3.7 2.8 3.7 -0.3 0.2 -1.9 -5.1 -4.0

* 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 (in p.p.)

2010/

11 2011/

12 2012/

13 2013/

14 2014/

15 2015/

16 Mar-

16 Jun-16

Sep-16

Dec-16

Mar-17

GDP (at Market Prices) 1.8 2.2 2.2 2.9 4.4 4.3 3.6 4.5 3.4 3.8 4.3

GDP (at Factor cost) 1.9 2.2 2.2 2.9 3.4 2.3 1.6 2.3 1.7 3.5 4.1

Public GDP (at Factor Cost) 1.1 0.7 0.3 0.5 0.6 0.4 0.2 0.2 0.1 0.5 0.8

Private GDP (at Factor Cost) 0.8 1.5 1.9 2.4 2.8 1.9 1.4 2.1 1.7 3.1 3.3 Agriculture, forestry, fishing and hunting 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.3

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

Extractions 0.1 0.0 -0.4 -0.6 -0.6 -0.7 -0.9 -0.9 -0.4 -0.1 0.2

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

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

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

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

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

Non-Petroleum -0.1 0.1 0.3 0.7 0.6 0.0 0.2 0.2 0.3 1.1 0.4

Services (excluding construction) 0.8 1.1 1.2 1.2 1.9 1.3 0.8 1.5 0.8 1.4 2.5

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

Real Estate Rental and Services 0.1 0.1 0.3 0.6 0.3 0.4 0.3 0.7 0.4 0.4 0.3

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

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

Insurance 1/ 0.2 0.1 0.0 0.0 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 0.2 0.3 0.3 0.2 0.3

Tourism -0.2 0.1 0.2 -0.7 0.4 -0.7 -0.7 -0.9 -0.9 -0.3 0.9 Educational, Health Care, and Other Services 0.1 0.1 0.1 0.2 0.1 0.2 0.1 0.2 0.2 0.2 0.2

Utilities 2/ 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1 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 0.2 0.2 0.4 0.7 0.5 0.7 0.5 0.8 0.7 0.8 0.5

Suez Canal 0.3 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

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

Source: Ministry of Planning.

1/ Includes Social Insurance. 2/ Includes Electricity, Water, and Sew-age.


Table A4: Market Developments

Oct-16 Nov-16 Mar-17 Apr-17 May-17 Jun-17

Latest Vs. Oct. 2016, in bps 1/

Policy Rate

Mid-Corridor Rate, % 12.25 14.98 15.25 15.25 15.98 17.25 500

Money Market

Interbank WAR,% 11.91 14.81 15.60 15.58 16.50 17.76 585

Interbank O/N rate, % 11.89 14.84 15.46 15.40 16.54 17.67 579

Interbank O/N average volume, EGP million 1,799 2,049 4,016 4,400 5,793 5,978 4179

Interbank O/N share of total interbank volume, % 62.90 62.68 47.64 45.60 54.87 61.98 -92

Banking Sector 2/

Deposit Rates, % 9.27 15.45 13.12 12.98 13.24 n/a 397

Time, % 9.03 10.48 11.72 11.82 12.01 n/a 298

Saving, % 12.20 18.94 18.57 18.47 18.60 n/a 640

< 3 year, % 11.66 19.88 19.86 19.83 19.89 n/a 823

> 3 years, % 12.21 15.79 15.22 15.29 14.69 n/a 248

Saving Accounts, % 7.98 10.57 10.52 10.50 9.66 n/a 168

Lending Rates, % 14.45 15.81 16.88 17.04 17.19 n/a 274

Short term business, % 14.92 16.70 17.07 17.07 17.51 n/a 259

Long term business, % 15.00 15.18 16.54 16.85 16.96 n/a 196

Retail, % 13.66 14.73 17.29 17.51 17.19 n/a 353

Local Debt Market

T-Bill yield 1Y, % 16.45 18.42 19.15 19.13 19.59 20.35 390

Weighted Average T-bill yield, % 15.79 18.40 19.32 19.26 19.60 20.37 457

Weighted Average T-bond yield, % 17.22 18.48 17.16 17.12 18.01 18.29 107

WACF, % 3/ 12.72 15.03 15.39 15.33 15.65 16.18 345

Spreads 3/

O/N interbank - Mid Corridor rate, % -0.36 -0.14 0.21 0.15 0.56 0.42 79

W.A. Lending rate - Mid Corridor rate, % 2.20 0.83 1.63 1.79 1.21 n/a -99

Mid Corridor - W. A Deposit Rate, % 2.98 -0.47 2.13 2.27 2.74 n/a -24

WACF - Mid Corridor rate, % 0.47 0.05 0.14 0.08 -0.33 -1.07 -155

W.A. Yield Curve, % 1.14 0.07 -1.73 -1.71 -1.27 -1.66 -280

W.A. Lending rate - WACF, % 1.73 0.79 1.49 1.71 1.54 n/a -18

W.A. Lending rate - T-bill yield, % 1.82 1.09 1.42 1.63 1.52 n/a -30

W.A. Lending rate - W.A. Deposit rate, % 5.18 0.36 3.76 4.06 3.96 n/a -122

W.A. Long term Business lending rate - W.A. Short term Business lending rate, % 0.08 -1.52 -0.54 -0.21 -0.55 n/a -63

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.


Table A5: Monetary Survey and Central Bank Balance sheet (eop, in EGP billion)

June 2012 June 2013 June 2014 June 2015 June 2016 May 2017

Monetary Survey

Net Foreign Assets 157.6 123.2 119.2 51.5 -87.4 69.4

Central Bank 76.1 38.2 37.4 25.3 -44.9 53.5

Commercial Banks 81.6 85.0 81.8 26.2 -42.5 15.8

Net Domestic Assets 936.8 1172.9 1397.4 1714.0 2181.9 2780.2

Net Claims on Government 568.1 790.4 1038.7 1332.9 1602.7 1809.7

Net Claims on Public Economic Authorities 10.6 12.1 6.5 -41.5 52.2 154.4

Claims on Public Sector Companies 40.6 42.9 45.4 63.2 93.1 150.6

Claims on Private Sector 453.3 497.7 534.5 623.6 712.1 978.3

Net Other Items -135.8 -170.3 -227.7 -264.2 -278.2 -312.8

Broad Money (M2) 1094.4 1296.1 1516.6 1765.5 2094.5 2849.6

Domestic Currency Component (M2D) 908.4 1071.9 1280.5 1502.5 1770.7 2163.7

Currency Outside Banks 194.0 241.0 270.9 292.7 346.9 404.6

Domestic Currency Deposits 714.3 830.9 1009.7 1209.8 1423.8 1759.1

Foreign Currency Deposits 186.0 224.2 236.1 263.0 323.8 685.9

Central Bank Balance sheet

Net foreign assets 76.1 38.2 37.4 25.3 -44.9 53.5

Foreign assets 92.2 101.7 115.8 148.1 149.9 584.4

Foreign liabilities -16.1 -63.4 -78.4 -122.8 -194.8 -530.9

Net domestic assets 187.6 279.7 327.1 460.6 522.9 500.3

Net claims on government 175.9 310.2 433.5 585.3 658.2 716.6

Net claims on public economic authorities -10.5 -10.4 -14.2 -61.4 -38.8 -35.1

Claims on Banks 58.3 43.3 25.3 25.0 120.4 259.8

Bank's Deposits in Foreign Currency -25.0 -33.1 -34.3 -51.4 -60.8 -131.5

Open Market Operations /1 -3.1 -20.8 -44.3 0.0 -150.0 -435.5

Other items net -7.9 -9.5 -38.8 -37.0 -6.1 125.9

Reserve money /2 263.7 317.9 364.5 485.9 478.1 553.8

Currency Outside Banks 194.0 241.0 270.9 292.7 346.9 404.6

Reserves of banks 69.6 76.9 93.6 193.2 131.2 149.2

Cash at vaults 10.8 19.8 17.8 20.8 21.6 29.4

Deposits in local currency 58.8 57.1 75.8 172.4 109.6 119.8

Source: Central Bank of Egypt

1/ Deposit auctions and deposit facility.

2/ Reserve money 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.


Abbreviations

aop Average of period

BoP Balance of payments

bps Basis points

CPSC Claims on public sector companies

CPS Claims on private sector

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

EGPC The Egyptian General Petroleum Corporation

EGX30 The Egyptian exchange benchmark index

eop End of period

FDI Foreign direct investment

FX MARKET Foreign exchange market

FY Fiscal year

GCC Gulf Cooperation Council

GDP Gross domestic product

IMF International Monetary Fund

L/C Local currency

L/F Foreign currency

m/m Month on month

M0 Reserve money

M2 Broad money

M2D Local currency component of broad money

MPC Monetary Policy Committee

NCG Net claims on government

NCPEA Net claims on public economic authorities

NEGS Net exports of goods and non-factor services

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

Q Quarter

REER Real effective exchange rate

RHS Right hand side

SOEs State-owned enterprises

UK United Kingdom

US United States

USD US dollars

w.a. Weighted average

WACF Weighted average cost of finance

y/y Year on year

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