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Moody’s: Egypt Prone to Interest Rate Shocks

Moody’s: Egypt Prone to Interest Rate Shocks

Thursday, 14 February, 2019 - 13:00
A Moody's sign on the 7 World Trade Center tower is photographed in New York. (Reuters)
Cairo - Sabri Najeh
Moody's Investor Service said Tuesday that Egypt is prone to shocks of interest rates during the coming period due to high borrowing costs and large financing needs, as it announced its outlook regarding the Egyptian economy.

Moreover, Moody’s saw that monetary policy is key to anchoring inflation expectations and reducing borrowing costs over the medium term.

It added that the credit profile remains constrained by labor market challenges to absorb the rapidly expanding labor force as a durable basis for social stability. “While domestic political stability improved, security risks remain elevated in certain areas,” Moody’s went on.

It continued that there is a rise of public debt, weak finance in the country, rise of deficit not to mention that debt affordability remains weak.

The Egyptian central bank’s Monetary Policy Committee will convene on Thursday to discuss the interest rates amid variation in expectations. Pharos Holding sees that the rate is likely to decrease during the current quarter amid mounting demand from foreigners on treasury bonds pegged to the Egyptian pound.

Foreign cash inflows in Egypt have exceeded USD163 billion in the last three years. Moody’s forecast that the country’s GDP would rise 5.5 percent in 2019 and 5.8 percent in 2020.

Senior Vice President at Moody's Investors Service Constantinos Kypreos stated that the accelerating growth in Egypt reflects increased public and private-sector investment, higher exports and a recovery in tourism.

"We expect balance sheet growth of around 15 percent in 2019 and for banks to maintain ample local currency funding, high liquidity, and strong and stable profitability," Kypreos added.

Egypt’s annual urban consumer price inflation increased to 12.7 percent in January from 12.0 percent in December 2018. Monthly inflation started to gain momentum again, rising by 0.6 percent after two consecutive months of decline, yet still within the normal rates.

An HC report supported the postponement of the resumption of the monetary easing policy to 2020.

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