(MENAFN- Daily News Egypt) The geopolitical event in the region urrounding Egypt cat a hadow over the expert' expectation regarding the future of the pound againt the dollar, interet rate, foreign exchange reerve and inflation in 2020.
According to a number of expert who have been polled by Daily New Egypt, thee event make the propect of the future extremely difficult, epecially a they are cloely related to foreign invetment in government debt intrument, and oil price, which are two major determinant in forecating the future of the pound' exchange rate, interet, reerve, and inflation.
Thi i confirmed by Mohamed Abdel Aal, a banking expert and member of the Board of Director of the Suez Canal Bank, who pointed out that thee event turn expectation into mere wihe and dream.
Regarding the future of the pound' interet rate, Abdel Aal aid that annual inflation decreaed to ingle digit by the end of December 2019, to reach 6.8% compared to 11.1% at the end of December 2018. Thi wa the bigget evidence of the ucce of the Central Bank of Egypt (CBE)' monetary policy in controlling inflation, and bringing it to it lowet level in nine year. The bank achieved it target of 9%(+/-3%), which pave the way for the poibility of further rate cut -up to 200, or 300 bai point gradually- until the end of 2020.
Abdel Aal treed that the timing of the rate cut will not only be linked to the rate of inflation, but there i another et of interconnected factor that may advance, or delay thi meaure.
He explained that one of thee factor i the effect of geopolitical development on the cah flow of the Middle Eat region, including Egypt, and reviewing the feaibility of any interet cut, and it relationhip to the development of public debt on the one hand, and the cot of debt on the other, a any interet reduction of 1% equal EGP 10bn reduction in the cot of public debt.
He aid that among the factor i the impact of any reduction on the employment ratio for depoit in bank, and the extent of it incentive for invetor to borrow. Currently, the ratio of loan to depoit in bank range between 42 to 44%, which i a very low rate.
Alo among the factor i the evolution of the yield curve on 10-year treaury bond, the 3-month bill, and the degree of change between them, a thi indicator i one of the mot important determinant that member of the Monetary Policy Committee (MPC) conider when making an interet rate deciion, a the committee conider the effect of any interet reduction on thi curve.
According to Abdel Aal, thee factor alo include the evolution of the Liquidity Coverage Ratio (LCI), which mean good aet that are rapidly converting to liquidity, and the extent of the impact of any interet reduction on the numerator and denominator of that ratio.
Alo among the factor i the meaurement of the reult of the proce of automatic pricing of gaoline at it next eion, in light of the rie in oil price globally, and the impact of thi on inflation in the future.
"The committee may ee in the next tage the poibility of reducing the compulory reerve ratio at the CBE, a an alternative to reduced interet, or ue the two together gradually, and thu return liquidity to the bank and, in turn, re-employ them, although I do not ee a need for that in light of the initiative launched by the CBE to encourage indutry and tourim," he aid.
Abdel Aal treed, 'We mut look at the package of cut that occurred throughout 2019, amounting to 4.5%, and we meaure and evaluate their effect on macroeconomic indicator accurately, o that the future interet rate i dealt with in a balanced manner, after having played it role in targeting inflation efficiently.'
With regard to the exchange rate, he expect the Egyptian pound to remain table, and to continue it trong performance againt other currencie, upported by the continued improvement of macroeconomic indicator, pecifically the recovery of tourim, where it revenue are expected to reach $15bn thi year, and the tability of the Suez Canal revenue depite the lowdown in world trade, with more growth expected in remittance from Egyptian working abroad to reach $28bn, along with improved export indicator.
"It i true that there are fear of high oil price and it impact on the oil import bill, but it will be leened by the increae in Egypt' export of natural ga, which will rie in price with higher oil rate," he explained, noting that the prime miniter took over the invetment portfolio and the formation of an invetment committee that he chair to help olve the problem that face the growth of direct invetment during the recent period. And if thee effort ucceed, thi will help the flow of more foreign exchange.
"I confirm my expectation for the tability of the price of the pound with it tendency to rie up to a balanced rate, achieving the interet of all dealer of all kind, according to the condition of upply and demand, where the dollar can reach a price level between EGP 14-15 in tage," according to Abdel Aal.
Regarding the future of foreign exchange reerve in 2020, Abdel Aal believe that it i expected to grow to reach $50bn by the end of 2020.
He aid it depended on everal factor, including the payment of loan intallment and their interet, the offering of long-term bond to pay due debt, and the movement of gold price included in the reerve, taking into account the proviion of payment for foreign invetment in government debt intrument through bank, not the CBE. Thu, the CBE would receive foreign exchange urplu and channel it to upport the reerve.
A for the direction of inflation in the new year, Abdel Aal ee that inflation will be within CBE' target of 9% (+/-3%), ranging from 7 to 9%, pointing out that ome etimate raie it to 10%, but the CBE will be keen to keep it below the target level.
Tarek Metwally, a banking expert, alo treed that the expectation eem very difficult, in light of the current tenion and turmoil in the Middle Eat, and their repercuion during the coming period, and the extent of their exaggeration or curtailment.
He aid he will aume that the impact of thi crii i hort-term and limited-impact, and reaon and interet will be prevalent to avoid the devatating effect on the region and the world. Baed on the bet cenario, which i the calm of the ituation in the region, Metwally expect the CBE to continue the policy of monetary eaing, and to reduce the interet rate on the pound to level le than 10% during 2020, to encourage invetment, production, and employment, and in line with the initiative launched to revitalie the market. Thi come in light of the decline of inflation rate, a well a facing any poible contraction or lowdown during the coming period.
Regarding the exchange rate, Metwally explained that the coming period i expected to be characteried by fluctuation in the movement of the dollar, a it will remain within EGP 15.5-16.5, due to internal challenge to the ucce of the econd tage of the economic reform programme, which require attracting more direct invetment, increaing production and export, reducing the trade balance deficit, enuring the utainability of growth and foreign exchange ource, and reducing dependence on invetment in dometic debt intrument.
A for the direction of inflation, Metwally expect a further decline in it, in light of the appearance of ign of a lowdown in the movement of the market, which help the monetary policymaker to have more flexibility in reducing interet rate.
He aid that all the above have a direct impact on the cah reerve in light of the growing rate of tourim and invetment in dometic debt intrument with a light growth in Egyptian' remittance and the Suez Canal revenue.
Metwally believe that the export rate till need more work to make leap during the coming period, noting that in light of thee factor, the foreign exchange reerve i expected to move between $45-$47bn by the end of 2020, which i an acceptable rate in light of the challenge and condition in the region.
He noted that if the conflict develop in the Middle Eat region, regarding the Libyan-Turkih and the American-Iranian crie, it will have an impact on the economie of the region, including Egypt.
Monette Do, vice preident of reearch at HC Securitie, expect general tability in foreign reerve over 2020 upported by utainable foreign currency inflow from tourim, oil import aving, and potential expanion in oil export.
Do believe that Egypt' overeign debt will continue to attract carry trade due to the poitive real interet rate offered.
During 2020, the Egyptian government i due to repay ome $11bn in foreign currency debt, the bulk of which i maturing gulf depoit, the term of which are like to be extended over another period.
In the budget, the government expect total foreign debt repayment of $3bn over fical year 2019-2020 which will be largely offet by planned international bond iuance of $4.5bn.
Looking at inflation differential between Egypt and it trading partner, Do would expect 5% depreciation in the EGP over 2020.
'We ,however, believe that thi could be largely mitigated by continued foreign currency inflow into the economy through it different channel,' he aid.
Do alo expected interet rate cut of 1.5-2% in 1Q 2020 and inflation to average 7.5% during the year.
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