Further opportunity to cut interest rate by 50-100 points on 14 November: Beltone

Inflation recorded positive increase in September, lower than our expectations

Beltone Financial Holding said in a research note that the low inflationary pressure and the condition of the macroeconomy will allow for further monetary easing by the Central Bank of Egypt (CBE).
According to Beltone Financial's research sector, the inflation is expected to score 4.2% in the fourth quarter of 2019. Accordingly, Beltone raised its expectations for further interest rate cut on CBE's upcoming meeting on 14 November 2019, predicting a cut of 50-100 points and a further cut of 300 points in 2020.
"We reiterate our view that muted inflationary pressures coupled with a solid macro stance will allow for a continued, aggressive, and easing cycle. A favourable base effect and EGP strength will continue to advocate benign annual inflation readings till year-end, keeping inflation rates within the CBE's target zone of 9% (+/-3%) by the end of 2020," Beltone said.
The statement noted that annual headline inflation saw a significant deceleration to 4.8% in September, well below both Beltone's previous estimate of 5.9% and August's reading of 7.5%, on the back of stable prices on a monthly basis versus an estimated rise of 1% and August's monthly rise of 0.7%.
"We believe the favourable base effect, EGP strength, and a more cautious spending behaviour have continued to reflect positively on the monthly change," the note said.
The deceleration was driven by a softer rise in food prices on an annual basis by 0.3% vs 6.9% in August, which was supported by a monthly drop of 1.8%.
Meanwhile, the transportation segment is the only segment that saw a rise both year over year (y-o-y) and month over month (m-o-m) of about 7%, something that Beltone expects to be reversed in October with the 4% average drop in selected fuel prices upon the first review under the newly implemented automatic fuel indexation mechanism. Therefore, he expected a soft decline in this segment of 1.5-2% during October.
"We note that the transportation segment that will likely be affected by the 3.2% drop in gasoline prices, accounts for 5.7% of the headline CPI basket," the note read.
Other key factors on Beltone's watch list include foreign inflow in the fixed income after the impact of the cut on yields, performance of banks' and the CBE's net foreign assets, and stability of the Egyptian pound within their expected range of EGP 16-17 per US dollar.