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Central Bank of Egypt: Monetary Policy Report - December 2017

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Central Bank of Egypt: Monetary Policy Report - December 2017

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  1. Central Bank of Egypt Monetary Policy Report December 2017 Monetary Monetary Policy Report , December 2017 Policy Committee | Central Bank of Egypt 0
  2. 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 preliminary statement on the 2018/19 fiscal budget. These and all other incoming data will be incorporated in the following Monetary Policy Report. Monetary Policy Report, December 2017 | Central Bank of Egypt 1
  3. Table of Content THE INITIAL CONDITIONS ……………………………………………………………………………………… PAGE 3 THE OUTLOOK………………………………………………………………………………………………….….. PAGE 16 APPENDIX: TABLES AND ABBREVIATIONS..……….………………………………………………..... PAGE 18 Monetary Policy Report, December 2017 | Central Bank of Egypt 2
  4. Figure 1 Trade-Weighted Economic Growth of Egypt ’s External Environment 1/ (in %, y/y) Advanced Economies Emerging Economies World 5.5 4.5 3.5 2.5 1.5 Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 Jun-16 Sep-16 Mar-16 Dec-15 Jun-15 Sep-15 Mar-15 Dec-14 Jun-14 Sep-14 -0.5 Mar-14 0.5 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) 10.0 Advanced Economies Emerging Economies World 8.0 6.0 4.0 2.0 0.0 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 -2.0 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) 10 8 6 4 2 0 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 -2 Source: World Trade Organization. 1 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 improve 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 decelerated 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 contribution from both Brazil and India while Russia registered weaker output growth. Meanwhile, China’s economic growth registered roughly a similar pace in 2017 Q4 compared to the previous quarter. After peaking in 2017 Q1, trade-weighted headline inflation 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 Russia. Growth in global trade stabilized in October and November 2017, after registering the fastest pace since 2011 Q1 in 2017 Q3, supported by improved global economic ac- 2017 Q4 data for Russia, Brazil and India is based on Bloomberg composite forecasts. Monetary Policy Report, December 2017 | Central Bank of Egypt 3
  5. tivity . Nevertheless, monetary policy normalization in advanced 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 forecast showing a modest slow-down to 4.6% in 2018 and 4.4% in 2019 compared to 4.7% in 20172. Figure 4 International Oil Prices (USD per barrel) Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 122 112 102 92 82 72 62 52 42 32 22 Source: Energy Information Agency Figure 5 International Food Prices (in %, y/y, using domestic CPI basket weights) 20 15 10 5 0 -5 -10 -15 -20 -25 -30 14.7 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 3.1 Source: Central Bank of Egypt calulations, World Bank and Food and Agriculture Organization. Figure 6 Policy Rates of Advanced Economies (in %) Federal Reserve Bank of England European Central Bank 1.75 1.50 1.25 1.00 0.75 0.50 0.25 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 0.00 Source: Bloomberg. 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 outages 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 reflecting 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 August 2017 and January 2018, recording an average inflation 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 differentials, capital flows into emerging markets dropped in early 2018 in reaction to the US equity market volatility. 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. 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 production from the market to stabilize markets. 3 Monetary Policy Report, December 2017 | Central Bank of Egypt 4
  6. Figure 7 Capital Flows into Emerging Markets Proxy recorded the highest nominal wage growth since 2009 , raised the odds of accelerated monetary policy normalization. This also coincided with rising US bond yields partly affected by higher US debt supply. (Index) 170 160 In their monetary policy meetings during November and December 2017, the Bank of England and the Federal Reserve hiked their policy rates, while both central banks as well as the European Central Bank kept policy rates unchanged in early 2018. These decisions were largely expected by markets. 150 140 130 120 110 Oct-17 Jun-17 Feb-17 Oct-16 Jun-16 Mar-16 Nov-15 Jul-15 Mar-15 Nov-14 Jul-14 Mar-14 100 Source: Bloomberg. Figure 8 Selected Trading Partners Currencies Against the USD (in %, m/m, +ve is depreciation) 2 1 0 -1 -2 Jan-18 Nov-17 Sep-17 Jul-17 May-17 Mar-17 Jan-17 -3 Source: Bloomberg and Central Bank of Egypt calculations. Figure 9 EGP Against the USD (in %, m/m, +ve is depreciation) 6 3 0 -3 -6 -9 Jan-18 Nov-17 Sep-17 Jul-17 May-17 Mar-17 Jan-17 -12 Source: Central Bank of Egypt calculations. Monetary Policy Report, December 2017 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 performance of the euro area, as well as the progress of Brexit negotiations between the EU and the UK. It also coincided 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 average modest appreciation of the EGP/USD, specifically between July and October, offset the average appreciation of trading partner currencies against the USD. The appreciation of trading partner currencies in December 2017 and January 2018, however, supported the depreciation of Egypt's NEER, while the EGP/USD remained largely unchanged. 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 January 2018, however, the REER depreciated due to the depreciation of the NEER as well as the muted monthly in- | Central Bank of Egypt 5
  7. Figure 10 Egypt ’s Monthly Inflation Differential with its Main Trading Partners (in %, m/m) 5 b) The external balance continued to benefit from increased competitiveness and the liberalized exchange rate system. 4 3 2 1 0 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 -1 Source: Bloomberg and Central Bank of Egypt calculations. Figure 11 Contribution to the Current Account (in p.p., y/y unless otherwise specified) Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Mar-16 Sep-15 Dec-15 150 100 50 0 -50 -100 -150 -200 -250 Source: Central Bank of Egypt. Figure 12 Tourism Receipts and Payments (in USD billion) Gross Tourism Payments 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 Egypt’s current account deficit continued to narrow, with the annual improvement accelerating for the fourth consecutive 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) compared 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 narrowing deficit was driven by a higher contribution from remittances since 2016 Q4 and improving NEGS since 2017 Q1. Services Payments Transfers Hydrocarbon Balance Services Receipts Non-hydrocarbon Balance Net Inv. balance Current Account (in %, y/y) Jun-15 flation differentials. As a result of the above, the annual REER depreciation has been softening since 2017 Q2. Gross Tourism Receipts 3.0 Net Tourism Revenues (RHS) 2.5 2.0 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 deterioration 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 imports, leading to an annual improvement in the hydrocarbon balance in 2017 Q3. Generally, improved exports of goods and services outweighed the effect of increased imports in these quarters. 1.5 1.0 0.5 0.0 -0.5 Sep-17 Mar-17 Sep-16 Mar-16 Mar-15 Sep-15 Sep-14 Mar-14 Sep-13 Mar-13 Sep-12 Mar-12 Sep-11 Mar-11 -1.0 Source: Central Bank of Egypt. Monetary Policy Report, December 2017 During 2017 Q3, the improvement in the nonhydrocarbon deficit continued to slow down after peaking in 2017 Q1 in line with slower annual REER depreciation. This was mainly driven by lower positive contribution from imports which turned negative in 2017 Q3. Meanwhile, non-hydrocarbon exports recovered in 2017 Q3 after stagnating in 2017 Q2, however its positive contribution was weaker compared to 2017 Q1 and 2016 Q4. | Central Bank of Egypt 6
  8. Figure 13 The Sum of Net FDI inflows and the Current Account Deficit excluding Grants (in USD billion) Sep-17 Sep-16 Sep-15 Sep-14 Sep-13 Sep-12 Sep-11 Sep-10 Sep-09 Sep-08 Sep-07 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 Source: Central Bank of Egypt. Figure 14 FDIs by Sector Disaggregation (in USD billion) Gross Outflows Non-residents Purchases of Real Estate Oil & Gas Non-Residents Net Purchase of Companies Newly Issued Capital or Capital Increase Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Mar-16 Sep-15 Dec-15 FDIs Net Inflows 6 4 2 0 -2 -4 On the other hand, the improvement in the services balance 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 recording the highest on record in 2017 Q3. During November and December 2017 net portfolio outflows occurred before 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 account 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 foreign assets, leading GIR to record USD38.2 billion in January 2018, the highest on record. As a result, the ratio of GIR to total external debt in 2017 Q4 continued to improve and is estimated to record the highest in six years. Source: Central Bank of Egypt. c) Economic activity continued to strengthen. Figure 15 Real GDP Growth at Market Prices (in p.p., y/y) Net Exports Δ in Inventories Gross Domestic Investments Public Consumption Private Consumption GDP (at Market Prices) 8 6 3.9 5.6 1.8 2.3 4 2 3.7 3.8 0 -0.1 -0.1 -1.9 4.4 1.4 3.2 -0.9 4.9 0.5 2.3 2.4 1.7 2.3 -1.3 -2 -4 03/04-09/10 10/11-13/14 14/15-15/16 2016 9m 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 unemployment rate to 11.3% in December 2017, the lowest rate since December 2010, supported by lower real wages, albeit recovering since 2017 Q2. 2017 9m Source: Ministry of Planning, Follow-up and Administrative Reform. Monetary Policy Report, December 2017 Strengthening economic activity in the first three quarters 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 | Central Bank of Egypt 7
  9. Figure 16 Unemployment rate public investments . This boost has more than offset the weaker private domestic demand. (in % of total labor force) 14 13 12 11 10 9 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 8 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 The private sector provided 82% of the value added during the first nine months of 2017. The value added has been relatively diversified across sectors. The tourism and the industrial sectors recorded a positive contribution 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 nonpetroleum manufacturing. Meanwhile, the contribution of other major sectors to growth remained broadly unchanged. (in p.p., y/y) General Government Suez Canal Trade Services Industry Agriculture GDP (at factor cost) 8 6 5.9 0.7 4.7 0.6 4 2.6 2.3 2 0.5 0.4 1.1 0.1 0.4 04/05-09/10 10/11-13/14 1.6 0 0.6 2.8 0.6 1.9 1.1 0.3 -0.6 1.6 0.3 -0.3 2.8 0.6 0.4 -2 14/15-15/16 2016 9m 2017 9m Source: Ministry of Planning, Follow-up and Administrative Reform. Figure 18 Leading Indicators d) Broad money growth began to ease in line with fiscal consolidation efforts. 5 (in percent, y/y, unless otherwise specified) PMI (RHS, Index level) 250 54 Number of Tourist Nights 200 52 150 50 100 48 Dec-17 Sep-17 Jun-17 Sep-15 Mar-17 40 Dec-16 -100 Sep-16 42 Jun-16 -50 Mar-16 44 Dec-15 46 0 Jun-15 50 Source: CAPMAS and IHS Markit. 5 Leading indicators generally suggest a continued improvement of economic activity, with some indicators showing a weaker momentum. PMI results continued to improve in 2017 Q4 and recorded a higher level in January 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. Annual M2 growth declined slightly due to fiscal consolidation efforts to average 22.7% in 2017 Q4, after increasing since 2016 Q4 mainly due to the recovery of nonfiscal 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 annual 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. All F/C components were recalculated excluding foreign exchange rate revaluation. Monetary Policy Report, December 2017 | Central Bank of Egypt 8
  10. Figure 19 Contribution to M2 Growth (in p.p., y/y) Claims on the Private Sector Other components of M2 Overall Fiscal Deficit excluding financing by the egyptian non banking sector M2 Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 Jun-16 Sep-16 Jun-15 Jun-14 Jun-13 Jun-12 Jun-11 30 25 20 15 10 5 0 -5 -10 -15 Source: Central Bank of Egypt. Figure 20 Inflation adjusted L/C Claims on the Private Sector (in %, y/y) The structure of the fiscal deficit financing reversed in 2017 Q4 as foreign non-bank financing declined and financing 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 government. Meanwhile, the contribution of claims on the private sector to M2 growth has been generally declining since 2017 Q2. This was driven at first by decreasing F/C claims, followed by L/C claims since 2017 Q3. However, the weakening of inflation-adjusted L/C claims on the private sector began since 2016 Q2, recording annual contractions during 2017. Growth of L/C claims on the household sector 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 witnessed annual contractions in 2017 Q3 and Q4. 25 Household Sector 20 The contribution of net claims on public economic authorities and claims on public sector companies, stabilized since 2017 Q3 after declining since 2016 Q4, as the recovery in both F/C and L/C net claims on public economic authorities offset the decline in both F/C and L/C claims on public sector companies. Private Business Sector 15 10 5 0 -5 -10 -15 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 -20 Source: Central Bank of Egypt. Figure 21 CIC Outside the Banking System1/ (in %) CIC to M2 CIC to LC deposits in M2 CIC to GDP (RHS) 12.5% 12.0% 11.5% 11.0% 10.5% 10.0% Mar-02 Dec-02 Sep-03 Jun-04 Mar-05 Dec-05 Sep-06 Jun-07 Mar-08 Dec-08 Sep-09 Jun-10 Mar-11 Dec-11 Sep-12 Jun-13 Mar-14 Dec-14 Sep-15 Jun-16 Mar-17 Dec-17 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 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 accelerated 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. Source: Central Bank of Egypt. 1/ Average CIC, L/C deposits and M2, four quarters rolling sum of GDP. Monetary Policy Report, December 2017 While annual growth in F/C deposits in USD has been relatively stable, the composition of deposits has been increasingly leaning towards L/C vis-à-vis F/C deposits since late 2004 in general. Moreover, the introduction of 1.5year certificates at a higher rate compared to longer-term certificates led to a shift in the structure of private sector | Central Bank of Egypt 9
  11. L /C deposits, specifically household deposits, to be dominated by deposits less than 3 years since November 2016, after being dominated by deposits more than 3 years up to October 2016. Figure 22 Structure of L/C Private Sector Deposits (in % of total Private Sector deposits) Earmarked deposits Deposits less than 3 years Deposits more than 3 years Current deposits 100 80 60 40 20 Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Mar-16 Dec-15 0 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 government and claims on banks. Higher reserve requirements due to the 400 bps increase of the ratio had a neutral effect on M0 as defined above. Source: Central Bank of Egypt. Figure 23 Developments in F/C Deposits (in %, y/y, unless otherwise stated) Dollarization ratio (in %, F/C deposits to deposits in M2) F/C deposits (RHS) 25 20 15 10 5 0 -5 -10 -15 70 60 50 40 30 20 10 Apr-03 Dec-03 Aug-04 Apr-05 Dec-05 Aug-06 Apr-07 Dec-07 Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Apr-17 Dec-17 0 Source: Central Bank of Egypt. Figure 24 Contribution to Adjusted M0 1/ (in p.p., y/y unless otherwise stated) Dec-17 Oct-17 Aug-17 Jun-17 Apr-17 Feb-17 Dec-16 Aug-16 60.0 50.0 40.0 30.0 20.0 10.0 (10.0) (20.0) Oct-16 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) Source: Central Bank of Egypt. 1/ M0 adjusted by total excess liquidity excluding repatriation flows. Consequently, the money multiplier measured as the ratio 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, receding inflationary pressures despite potentially being impacted by future fiscal consolidation measures, and the appreciation of the REER on average. Meanwhile, nominal interest rates in the economy remained broadly unchanged 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 liquidity over the short-term via the CBE’s seven-day deposit 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. Monetary Policy Report, December 2017 | Central Bank of Egypt 10
  12. variable rate deposit auctions greater than seven days has been continuously declining between June and October 2017 , before stabilizing at below 20 days between the maintenance periods ending October 23, 2017 and February 12, 2018. Figure 25 Excess Liquidity 1/ (in EGP billion) Average Variable-Rate Deposits 600.0 Average Fixed-Rate Deposit 500.0 Average O/N Deposit Facility 400.0 Average Excess Liquidity 300.0 200.0 100.0 14-Oct-13 20-Jan-14 28-Apr-14 4-Aug-14 10-Nov-14 16-Feb-15 25-May-15 31-Aug-15 7-Dec-15 14-Mar-16 20-Jun-16 26-Sep-16 2-Jan-17 10-Apr-17 17-Jul-17 23-Oct-17 29-Jan-18 0.0 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) O/N Interbank Volume (in EGP billion, RHS) Key Policy Rate 20.0 80 O/N Lending Facility O/N Deposit Facility 16.0 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 October 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 ending October 23, 2017. 60 O/N Interbank Rate 40 12.0 20 0 14-Oct-13 23-Dec-13 3-Mar-14 12-May-14 21-Jul-14 29-Sep-14 8-Dec-14 16-Feb-15 27-Apr-15 6-Jul-15 14-Sep-15 23-Nov-15 1-Feb-16 11-Apr-16 20-Jun-16 29-Aug-16 7-Nov-16 16-Jan-17 27-Mar-17 5-Jun-17 14-Aug-17 23-Oct-17 1-Jan-18 8.0 Source: Central Bank of Egypt. Figure 27 Short-term Interbank Market Yield Curve (in %) Excluding the minor increase in December 2017, L/C denominated treasury yields continued to drop in January 2018 and the first two issuances in February 2018, resuming its decrease since August 2017. The WACF recorded 13.5% on a tax adjusted basis during the first two issuances in February 2018, the lowest level since November 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 financing sources of the fiscal deficit. Key Policy Rate Monday 23-Oct-17 20.0 Monday 12-Feb-18 19.3 18.5 O/N < 1W 1W < 1M Source: Central Bank of Egypt calculations. Monetary Policy Report, December 2017 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 continued attempts by investors to lock on high yields for the | Central Bank of Egypt 11
  13. Figure 28 Rates of the Treasury ’s L/C marketable securities1/ (in %, unless otherwise stated) 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, Feb-18 Apr-17 Sep-17 Jun-16 Nov-16 Jan-16 Aug-15 Oct-14 Mar-15 May-14 Jul-13 300 200 100 0 -100 -200 -300 Dec-13 Feb-13 Sep-12 22.0 RHS) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 Source: Central Bank of Egypt calculations. 1/ Up to February 13, 2018. Figure 29 Local Debt Coverage Ratios1/ (in (x), unless otherwise stated) Coverage Ratio for T-bills Coverage Ratio for T-bonds Total Demand for Local Debt WACF (In %, tax adjusted, RHS) 8.0 20.0 15.0 4.0 10.0 2.0 5.0 0.0 0.0 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 6.0 Source: Central Bank of Egypt calculations. 1/ Up to February 13, 2018. Figure 30 Interest Rates1/ (in %) O/N Interbank Rate 20.0 WACF (Tax adjuxted) 18.0 Weighted Average Rate of New Deposits Weighted Average Rate of New Lending 16.0 14.0 12.0 10.0 8.0 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 6.0 Source: Central Bank of Egypt. 1/ Up to December 2017. Monetary Policy Report, 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 Tbills 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 declined for the first time after increasing for three consecutive quarters, despite increasing in nominal terms. In the banking system, both the w.a. rate for new deposits and loans across maturities and categories remained broadly unchanged at 15.3% and 19.1% in 2017 Q4, reflecting around 84% and 72% transmission of the CBE’s 700 basis points hike of its key policy rates. This came despite 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 reacted 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 certificates. 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 longerterm average of 4.9p.p. The narrowing of the net interest rate margin was mainly due to an increasing share of saving certificates of new deposits. Meanwhile, the spread between lending and time deposit rates remained stable. Furthermore, the equity market continued to reflect value increases, in spite of the recent decline in line with the | Central Bank of Egypt 12
  14. global equity sell off . The EGX30 benchmark index recorded all-time highs in January 2018, registering cumulative increase of 83% between November 2016 and January 2018, yet remained below the October 2016 level in USD terms by a magnitude of 9.3%. This pickup was supported 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 Figure 31 Stock Market Indices1,2/ (Index, November 1, 2016 = 100) EGX30 Index EGX70 Index EGX100 Index 1-Nov-16 27-Nov-16 22-Dec-16 18-Jan-17 14-Feb-17 12-Mar-17 5-Apr-17 7-May-17 31-May-17 2-Jul-17 27-Jul-17 22-Aug-17 20-Sep-17 18-Oct-17 13-Nov-17 10-Dec-17 4-Jan-18 1-Feb-18 300.0 250.0 200.0 150.0 100.0 50.0 0.0 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) 36 32 28 24 20 16 12 8 4 0 36 32 28 24 20 16 12 8 4 0 Headline Inflation (100%) Jan-18 Sep-17 May-17 Jan-17 Sep-16 May-16 Jan-16 Sep-15 May-15 Jan-15 Sep-14 May-14 Jan-14 Core Inflation (74.43%) 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. 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 November 2017 and before inching up slightly during the first days in February 2018. However, Egypt’s CDS spreads remained relatively low compared to the majority of peers with similar sovereign credit rating. f) Inflationary pressures have been contained. Inflationary pressures have been contained, a consequence of tighter real monetary conditions. This has been evident by relatively tame monthly inflation figures, despite 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, respectively. This comes after stabilizing in the period be- Using the budgeted GDP of 2017/18. Monetary Policy Report, December 2017 | Central Bank of Egypt 13
  15. Figure 33 Headline and Core Inflation tween August and November 2017 at around 1 .1%, affected by upward adjustments of regulated prices which accounted on average for 44% of monthly headline inflation. (in %, m/m, weights in parenthesis) Jan-18 Nov-17 Jul-17 Sep-17 May-17 Mar-17 Jan-17 Nov-16 Sep-16 May-16 Mar-16 Jan-16 Jul-16 Headline Inflation (100%) Core Inflation (74.43%) 6 5 4 3 2 1 0 -1 -2 Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt. Due to tame monthly dynamics, annual headline and core inflation declined for the sixth consecutive month to record 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, respectively, the lowest rates since October and September 2016. Favorable base effects have been accelerating the decline of annual inflation rates since November 2017. Figure 34 Contribution to Headline Inflation (in p.p., m/m) Regulated Items Fresh Fruits & Vegetables Core Food Items Retail Items Services 5 4 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 inflation 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. 3 2 1 0 Jan-18 Nov-17 Sep-17 Jul-17 May-17 Mar-17 Jan-17 Nov-16 Sep-16 Jul-16 May-16 Mar-16 Jan-16 -1 Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt. Figure 35 Diffusion Index: Headline Inflation by Number of Items that Experienced Price Changes (in %) Price increases Price decreases Net Annual headline inflation rate 55 45 35 25 15 5 -5 Jan-18 Sep-17 May-17 Jan-17 Sep-16 May-16 Jan-16 Sep-15 May-15 Jan-15 Sep-14 May-14 Jan-14 -15 Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt. Monetary Policy Report, December 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 depreciation has diminished, including the effect on items that witness delayed or seasonal consumption such as education in October 2017. In the meantime, prices of regulated items contributed significantly to headline inflation between July and November 2017 and marginally in January 2018. This was mainly due to subsidy reforms related to hydrocarbons, electricity and water supply as well as upward adjustments 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 | Central Bank of Egypt 14
  16. Figure 36 Timing of Regulated Price Adjustments as Reflected in CPI October 2017 November 2017 • Government School and private lessons • Landline telephones • Tobacco January 2018 • Health insurance services. • Natural gas installation cost Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt Figure 37 Contribution to Headline Inflation Non-Food (60.1%) Food (39.9%) 5 Meanwhile, food inflation resumed its downward trend since August 2017, registering consecutive negative rates since November 2017. Negative food inflation was witnessed for the first time since January 2016. The downward trend was driven by lower core food inflation except 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 stabilized after declining in December 2017 for the first time since December 2015. Red meat prices were stable between September and November 2017 after recording consecutive increases since April 2016. (in p.p., m/m) 6 been only contributing marginally to headline inflation since January and March 2017, respectively, with some exceptions mostly due to seasonality or due to fiscal reform measures. 4 3 2 1 0 Jan-18 Nov-17 Sep-17 Jul-17 May-17 Mar-17 Jan-17 Nov-16 Sep-16 Jul-16 May-16 Mar-16 Jan-16 -1 Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt. Figure 38 International vs. Domestic Core Food Prices While historically low inflation in November and December was mainly driven by lower prices of volatile food items, November and December 2017 inflation reflected cumulatively a relatively weaker decline that was compensated for in January 2018. Prices of fresh vegetables have been declining since November 2017 after increasing between July and October 2017, while prices of fresh fruits have generally stabilized. (in %, m/m, using domestic CPI basket weights) Jan-18 Oct-17 Jul-17 Apr-17 Jan-17 Oct-16 Jul-16 Apr-16 Jan-16 Oct-15 Jul-15 Jan-15 10 8 6 4 2 0 -2 -4 -6 Apr-15 International Core Food Prices (based on domestic weights) Domestic Core Food Prices Source: Central Agency for Public Mobilization and Statistics, Central Bank of Egypt, World Bank and Food and Agriculture Organization. Monetary Policy Report, December 2017 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. | Central Bank of Egypt 15
  17. 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) 35 30 25 20 15 10 5 90% 70% 50% Dec-18 Sep-18 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Mar-16 0 30% confidence interval 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 program 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 demand, 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 consumption 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 consumption basket are forecasted to remain relatively stable in FY 2017/18. Meanwhile, de8 This figure was upwardly revised by the ministry of finance from the budgeted 9.0% of GDP since the last monetary policy report. Data for FY 2016/17 are pre-actual according to the ministry of finance. 10 As of February 15, 2018. 9 Monetary Policy Report, December 2017 | Central Bank of Egypt 16
  18. 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. Monetary Policy Report, December 2017 | Central Bank of Egypt 17
  19. Appendix : Tables and Abbreviations Monetary Policy Report, December 2017 | Central Bank of Egypt 18
  20. Table A1 : CPI Contribution Weights Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Jan18 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 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 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 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 Regulated Items Food Prices of which Annual Contributions to Headline CPI Inflation (in p.p.) Headline Regulated Items 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 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 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 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 Food Prices of which 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. Monetary Policy Report, December 2017 | Central Bank of Egypt 19
  21. Table A2 : Egypt's Balance of Payments (USD billion) 2015/2016*(1) Date Trade Balance 2013 /2014 2014/ 2015 2015/ ( 2016* 2016/ ( 2017* 1) 1) Q1 Q2 Q3 2016/2017* 2017/18* Q4 Q1 Q2 Q3 Q4 Q1 -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 3.8 3.8 3.8 4.1 Import payments** -60.2 -61.3 -57.4 -57.1 -14.7 -14.3 -14.2 -14.1 3.7 14.7 -14.4 Petroleum imports -13.2 -12.4 -9.3 -11.2 -2.8 -2.6 -1.6 -2.2 Other imports -46.9 -48.9 -48.1 -45.9 -11.9 -11.6 -12.6 8.3 10.7 6.5 6.8 2.8 1.8 0.9 17.4 21.8 16.1 16.6 5.0 4.0 Transportation 9.5 9.9 9.5 9.1 2.6 Of which: Suez Canal dues 5.4 5.4 5.1 4.9 Travel ( tourism revenues ) 5.1 7.4 3.8 Payments 9.2 11.1 Travel 3.0 -14.7 -14.1 -14.8 -2.5 -3.1 -3.0 -2.8 -11.9 -2.7 11.9 -11.9 -11.6 -11.1 -12.0 1.0 1.4 1.0 2.0 2.3 2.8 3.4 3.6 3.8 3.5 4.2 5.1 5.7 2.4 2.2 2.3 2.3 2.0 2.3 2.4 2.3 1.4 1.3 1.2 1.2 1.3 1.2 1.2 1.2 1.4 4.4 1.7 1.0 0.6 0.5 0.8 0.8 1.3 1.5 2.7 9.5 9.8 2.2 2.2 2.6 2.6 2.4 2.5 2.2 2.8 2.8 3.3 4.1 2.7 0.8 0.9 1.2 1.2 1.1 0.6 0.4 0.6 0.6 -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 Services Balance Receipts Investment Income Balance 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 Direct investment abroad 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 -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 Portfolio investment in Egypt # (Net) 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 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 -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 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 -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 -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 Other Investments (Net) Net Borrowing Medium- and Long-Term Loans (net) Medium- and Long-Term Suppliers' Credit Short term Suppliers’ Credit (net) Other Assets Other Liabilities Net Errors & Omissions Overall Balance Change in CBE Reserve Assets (Increase -) 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 -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 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 -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 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 -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. Monetary Policy Report, December 2017 | Central Bank of Egypt 20
  22. Table A3 : GDP Contribution GDP (at Market Prices) GDP (at Factor cost) Public GDP (at Factor Cost) Private GDP (at Factor Cost) Agriculture, forestry, fishing and hunting Industry Extractions Oil Natural gas Other Manufacturing Petroleum Non-Petroleum Services (excluding construction) Construction Real Estate Rental and Services Transportation and Warehousing Finance Insurance 1/ Communication Tourism Educational, Health Care, and Other Services Utilities 2/ Information Trade Suez Canal General Government 4.3 2.3 0.4 1.9 0.3 -0.6 -0.7 -0.1 -0.7 0.0 0.1 0.1 0.0 1.3 0.5 0.4 0.2 0.2 0.0 0.2 -0.7 Mar16 3.6 1.6 0.2 1.4 0.3 -0.4 -0.9 -0.1 -0.8 0.0 0.4 0.2 0.2 0.8 0.5 0.3 0.2 0.1 0.0 0.2 -0.7 Jun16 4.5 2.3 0.2 2.1 0.3 -0.7 -0.9 -0.4 -0.6 0.1 0.2 0.1 0.2 1.5 0.6 0.7 0.3 0.2 0.0 0.3 -0.9 Sep16 3.4 1.7 0.1 1.7 0.4 -0.7 -0.4 -0.3 -0.1 0.0 -0.3 -0.5 0.3 0.8 0.3 0.4 0.2 0.2 0.0 0.3 -0.9 Dec16 3.8 3.5 0.5 3.1 0.4 0.9 -0.1 -0.4 0.3 0.0 1.0 0.0 1.1 1.4 0.5 0.4 0.2 0.1 0.0 0.2 -0.3 Mar17 4.3 4.3 0.8 3.3 0.3 0.7 0.2 -0.5 0.6 0.0 0.5 0.1 0.4 2.5 0.4 0.3 0.2 0.1 0.0 0.3 0.9 Jun17 5.0 4.8 0.4 4.4 0.4 -0.5 -0.5 -0.3 -0.3 0.1 0.0 0.0 0.0 3.5 0.7 0.8 0.3 0.2 0.0 0.5 0.6 Sep17 5.2 5.2 1.2 3.9 0.4 1.5 0.6 -0.1 0.6 0.0 1.0 0.0 0.9 2.4 0.4 0.4 0.2 0.2 0.0 0.2 0.8 0.1 0.1 0.0 0.5 0.0 0.2 0.1 0.0 0.7 0.0 0.1 0.1 0.0 0.5 0.0 0.2 0.2 0.0 0.8 0.0 0.2 0.1 0.0 0.7 0.0 0.2 0.1 0.0 0.8 0.0 0.2 0.1 0.0 0.5 0.0 0.3 0.0 0.0 0.9 0.2 0.2 0.1 0.0 0.5 0.1 0.7 0.5 0.4 0.4 0.5 0.2 0.1 0.3 0.2 2012/13 2013/14 2014/15 2015/16 2.2 2.2 0.3 1.9 0.3 0.0 -0.4 -0.1 -0.3 0.0 0.4 0.1 0.3 1.2 0.2 0.3 0.1 0.1 0.0 0.1 0.2 2.9 2.9 0.5 2.4 0.3 0.2 -0.6 0.1 -0.7 0.0 0.8 0.1 0.7 1.2 0.3 0.6 0.2 0.2 0.0 0.2 -0.7 4.4 3.4 0.6 2.8 0.3 -0.1 -0.6 0.1 -0.7 0.0 0.5 -0.1 0.6 1.9 0.4 0.3 0.2 0.1 0.0 0.2 0.4 0.1 0.1 0.0 0.4 0.0 0.2 0.1 0.0 0.7 0.0 0.3 0.5 Source: Ministry of Planning. 1/ Includes Social Insurance. 2/ Includes Electricity, Water, and Sewage. Monetary Policy Report, December 2017 | Central Bank of Egypt 21
  23. 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 56.8 936.8 1172.9 1397.4 1714.0 2181.9 2857.1 2861.8 2988.5 Net Domestic Assets (NDA) 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 Authorities 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 1094.4 1296.1 1516.6 1765.5 2094.5 2918.2 3050.4 3202.7 908.4 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 2115.8 186.0 224.2 236.1 263.0 323.8 694.3 665.2 679.0 Broad Money (M2) Local Currency Components (M2D) F/C Deposits 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 -485.6 187.6 279.7 327.1 460.6 522.9 573.9 484.4 489.0 175.9 310.2 433.5 585.3 658.2 740.3 741.9 682.4 -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 -7.9 -9.5 -38.8 -37.0 -6.1 176.0 195.4 213.4 263.7 317.9 364.5 485.9 478.1 577.6 586.6 646.4 Currency Outside Banks 194.0 241.0 270.9 292.7 346.9 419.1 416.1 407.8 Reserves of banks Net domestic assets (NDA) Net claims on government Net claims on public economic authorities Other items net Reserve money (M0) /2 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. Monetary Policy Report, December 2017 | Central Bank of Egypt 22
  24. Table A5 : Market Developments Oct-16 Policy Rate Mid-Corridor Rate, % Money Market Interbank WAR,% Interbank O/N rate, % Interbank O/N average volume, EGP million Interbank O/N share of total interbank volume, % Banking Sector Deposit Rates, % Time, % Short-term Deposits (<1Y), % Other Deposits, % Saving, % < 3 years, % > 3 years, % Saving Accounts, % Lending Rates, % W.A. Business Lending Rates, % Short term business, % Long term business, % Retail, % Local Debt Market T-Bill yield 1Y, % W.a T-bill yield, % W.a T-bond yield, % WACF, % 3/ Spreads 3/ O/N interbank - Mid Corridor rate, % W.a. Lending rate - Mid Corridor rate, % Mid Corridor - W. A Deposit Rate, % WACF - Mid Corridor rate, % W.a. Yield Curve, % W.a. Lending rate - WACF, % W.a. Lending rate - T-bill yield, % W.a. Lending rate - W.A. Deposit rate, % Long term Business - Short term Business lending, % Source: Central Bank of Egypt. Mar17 Jun17 Sep17 Dec17 Jan18 Feb-18 1/ Latest Vs. Oct. 2016, in bps 2/ 12.25 15.25 17.25 19.25 19.25 19.25 19.25 700 11.91 11.89 1,799 62.90 15.60 15.46 4,016 47.64 17.76 17.67 5,978 61.98 19.00 18.98 4,768 84.98 19.00 18.93 4,830 76.74 19.00 18.94 5,058 71.65 18.89 18.87 4,224 89.21 698 698 2,425 2631 9.27 9.03 8.98 10.53 12.20 11.66 12.21 7.98 14.38 14.96 14.92 15.08 13.66 12.50 10.92 10.86 12.76 18.54 19.86 15.18 10.39 16.82 16.75 17.03 16.14 17.21 13.52 12.85 12.82 13.82 18.68 19.91 14.79 10.61 18.16 18.32 17.80 18.88 17.34 15.51 14.71 14.73 14.44 18.92 19.94 15.10 8.96 19.05 19.00 18.97 19.17 19.46 15.15 14.09 14.17 13.21 19.13 19.97 14.97 8.76 19.39 19.51 19.65 19.21 18.70 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 588 506 519 268 693 831 277 78 501 455 472 413 505 16.45 15.79 17.22 12.72 19.15 19.32 17.16 15.39 20.35 20.37 18.29 16.18 18.66 18.78 15.81 14.83 18.22 18.67 15.79 14.74 17.63 18.19 15.40 14.38 16.55 17.08 14.43 13.53 10 129 -279 80 -0.36 2.13 2.98 0.47 1.14 2.24 1.75 5.12 0.21 1.57 2.75 0.14 -1.73 1.36 1.36 4.32 0.42 0.91 3.73 -1.07 -1.66 2.14 1.87 4.65 -0.27 -0.20 3.74 -4.42 -2.38 4.17 4.03 3.55 -0.32 0.14 4.10 -4.51 -2.30 4.76 4.46 4.25 -0.31 n/a n/a -4.87 -2.23 n/a n/a n/a -0.38 n/a n/a -5.72 -2.12 n/a n/a n/a -2 -199 112 -620 -326 253 271 -87 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. Monetary Policy Report, December 2017 | Central Bank of Egypt 23
  25. Abbreviations bps bbl CBE CIC CPI EGP EGX30 eop F /C FDI FY GDP GIR L/C m/m M0 M2 M2D NEGS NEER NFA O/N p.p. Q REER UK US USD w.a. WACF y/y Basis points Barrel of oil Central Bank of Egypt Currency in circulation outside the banking system Consumer price index Egypt Pound The Egyptian exchange benchmark index End of period Foreign currency Foreign direct investment Fiscal year Gross domestic product Gross international reserves Local currency Month on month Reserve money Broad money Local currency component of broad money Net exports of goods and services Nominal effective exchange rate Net foreign assets Overnight Percentage points Quarter Real effective exchange rate United Kingdom United States United States Dollars Weighted average Weighted average cost of finance of the Treasury’s L/C marketable securities Year on year Monetary Policy Report, December 2017 | Central Bank of Egypt 24
  26. Monetary Policy Report , December 2017 | Central Bank of Egypt 25