In brief
- The Central Bank of Egypt unexpectedly raised the overnight deposit rate by 200bps to 21.25% in its February 2024 MPC meeting. Whereas disinflation has been on course throughout 4Q2023, negative spillover from the Middle East geopolitical tensions and ongoing trade disruptions have fueled upside risks to the inflation outlook.
- Against the backdrop of the MPC meeting was the conclusion of the delayed combined first and second reviews of the USD 3.0bn Extended Fund Facility (EFF) under the current IMF programme. In line with consensus, we believe that a devaluation is imminent; an event that will precede the formal approval of the combined reviews by the IMF Executive Board.
- As of Thursday’s close, the market penciled in a 34.2% downward adjustment on the Egyptian pound based on the 1-month non-deliverable forwards. As was the case post November 2016 devaluation, and 2022-2023 devaluation episodes, it is becoming clearer that devaluation by itself is not the panacea. This point suggests that the imminent IMF deal will lay emphasis on greater Egyptian pound flexibility going forward to restore market confidence.
- From media reports, Egypt is to upsize the current IMF programme to USD 10.0bn. The IMF Managing Director was tight-lipped with details in her media roundtable late yesterday, but we think an IMF deal will be finalized in the coming week. In our view, we believe this will comprise an augmentation of the current EFF financing and some tapping of the Resilience and Sustainability Facility (RSF) which Egypt was equally eyeing.
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