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Monetary Policy Report, June 2017 | Central Bank of Egypt 0
Central Bank of Egypt
Monetary Policy Report June 2017
Monetary Policy Committee
16
Monetary Policy Report, June 2017 | Central Bank of Egypt 1
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 2
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 3
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.
Monetary Policy Report, June 2017 | Central Bank of Egypt 4
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,
50
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300
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Jun
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Food
Energy
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Advanced economies
Emerging economies (RHS)
-2
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4
6
8
10
Jan
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y-1
4
Se
p-1
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y-1
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5
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-16
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y-1
6
Se
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Jan
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7
Advanced economines
Emerging economies
Monetary Policy Report, June 2017 | Central Bank of Egypt 5
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).
0
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r-1
7
Non-oil exports
Non-oil imports (RHS)
Monetary Policy Report, June 2017 | Central Bank of Egypt 6
Figure 7 Oil trade balance (in levels, USD billion)
Source: Central Bank of Egypt.
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)
Source: Central Bank of Egypt.
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
0
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80
100
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140
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Se
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Se
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r-1
7
Oil imports
Oil exports
Brent oil price (USD/barrel, RHS)
-20
-10
0
10
20
30
40
50
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1015202530
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Nominal GDP growth in the GCC
Private remittances (RHS)
-8-6-4-202468
10
Dec-1
0
Ma
y-1
1
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r-1
2
Au
g-1
2
Jan
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Jun
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3
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p-1
4
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b-1
5
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15
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5
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y-1
6
Oct-
16
Ma
r-1
7
FDIs (net)
Portfolio inflows (net)
CBE liab. and non-reserve assets+ commercialbanks NFA (flows)
Monetary Policy Report, June 2017 | Central Bank of Egypt 7
Figure 10 FDIs ability to fund the current account deficit excluding grants
(in USD billion)
Source: Central Bank of Egypt.
Figure 11 FDIs by sector disaggregation
(in percent of gross FDI inflows)
Source: Central Bank of Egypt.
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.
-5
-4
-3
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-1
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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
-8
-6
-4
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0
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r-0
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7
Global financial crisis
Liberalization of the exchange rate regime
Managed exchange rate regime
Monetary Policy Report, June 2017 | Central Bank of Egypt 8
Figure 13 External debt indicators
(in USD billion unless otherwise stated)
Source: Central Bank of Egypt.
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
Ma
r-1
1
Ma
r-1
2
Ma
r-1
3
Ma
r-1
4
Ma
r-1
5
Ma
r-1
6
Ma
r-1
7
Other Sectors
Banks
Monetary Authority
Central & Local Government
Total External Debt (% of GDP)
Total external debt (% of net international reserves, RHS)
-4
-2
0
2
4
6
02468
10121416
Ma
r-1
0
Ma
r-1
1
Ma
r-1
2
Ma
r-1
3
Ma
r-1
4
Ma
r-1
5
Ma
r-1
6
Ma
r-1
7
Unemployment rate (% of total labor force)
Labour Force (RHS)
Employment (RHS)
-1.5
-1
-0.5
0
0.5
1
1.5
2
Jun
-10
Ma
r-1
1
Dec-1
1
Se
p-1
2
Jun
-13
Ma
r-1
4
Dec-1
4
Se
p-1
5
Jun
-16
Ma
r-1
7
Tho
usa
nd
s
Agriculture Industry
General Government Trade
Services Total
Monetary Policy Report, June 2017 | Central Bank of Egypt 9
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)
Source: Ministry of Planning, Follow up & Administrative reform.
Figure 18 Contribution to industrial production index by sectors (in p.p., y/y)
Source: Ministry of Planning, Follow up & Administrative reform.
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
3/0
4-0
9/1
0
201
0/1
1-1
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
5-
09/1
0
201
0/1
1-
13/1
4
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
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Tourism ManufacturingConstruction Suez CanalTransportation ElectricityOil products Natural gasIndustrial Production
Monetary Policy Report, June 2017 | Central Bank of Egypt 10
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 11
Figure 22 Overnight Interbank Market (in %, unless otherwise stated)
Source: Central Bank of Egypt.
Figure 23 Average activity in the Interbank market (in EGP million, unless otherwise stated)
Source: Central Bank of Egypt.
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)
Monetary Policy Report, June 2017 | Central Bank of Egypt 12
Figure 25 Government's WACF (in %)
Source: Central Bank of Egypt calculations.
Figure 26 Local Debt Coverage Ratios (in times (X))
Source: Central Bank of Egypt calculations.
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 13
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)
Source: Central Bank of Egypt calculations.
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
Source: Central Bank of Egypt calculations.
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)
Monetary Policy Report, June 2017 | Central Bank of Egypt 14
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.)
Source: Central Bank of Egypt.
Figure 33 Claims on the Private Sector (in %, y/y)
Source: Central Bank of Egypt.
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
Source: Central Bank of Egypt calculations.
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 15
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 16
Figure 37 Net domestic and external debt of Govern-ment (in % of GDP)
Source: Central Bank of Egypt.
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)
Source: Central Bank of Egypt.
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.
Source: Central Bank of Egypt.
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 17
Figure 40 Developments in Foreign currency deposits (in %, y/y, unless otherwise stated)
Source: Central Bank of Egypt.
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)
Monetary Policy Report, June 2017 | Central Bank of Egypt 18
Figure 43 Structure of deposits in local currency by ma-turity in M2 (in %)
Source: Central Bank of Egypt.
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 19
Figure 46 Diffusion Index: Headline Inflation by Number of Items that Experienced Price Changes (in %)
Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt.
Figure 47 Monthly Contribution to Producer Price Index (in p.p.)
Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt.
Figure 48 Tradable Goods and Egypt’s Nominal Effective Exchange Rate (in %, y/y)
Source: Central Agency for Public Mobilization and Statistics and Central Bank of Egypt.
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 20
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 21
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.
Monetary Policy Report, June 2017 | Central Bank of Egypt 22
Appendix: Tables and Abbreviations
Monetary Policy Report, June 2017 | Central Bank of Egypt 23
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.
Monetary Policy Report, June 2017 | Central Bank of Egypt 24
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.
Monetary Policy Report, June 2017 | Central Bank of Egypt 25
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.
Monetary Policy Report, June 2017 | Central Bank of Egypt 26
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.
Monetary Policy Report, June 2017 | Central Bank of Egypt 27
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.
Monetary Policy Report, June 2017 | Central Bank of Egypt 28
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
Monetary Policy Report, June 2017 | Central Bank of Egypt 29