The CBE’s Monetary Policy Committee decided to raise interest rates by another 200 bps in its meeting last Thursday, marking the third such interest rate hike since the EGP float and a 700 bps increase in borrowing costs since then. The overnight deposit rate was raised to 18.75% from 16.75%, while the overnight lending rate increased 19.75% from 17.75%. The CBE’s main operation rate grew to 19.25% and the discount rate was also raised to 19.75% from 17.75%, according to a statement from the CBE.

Fuel, electricity hikes to blame: "Higher prices of hydrocarbon products effective June 29, 2017, higher value added taxes effective July 1, 2017, higher electricity prices scheduled for July 2017, as well as other potential regulated price adjustments further increase inflationary pressure," the central bank said, justifying the move. Fuel prices were raised an average 55% late last month, and the government had moved electricity prices last week. Vice Minister of Finance Ahmed Kouchouk had projected inflation would rise 3-4.5% as a result of the fuel hikes. Bloomberg notes the IMF’s hand in this and last May’s interest rate hike as well.

The measure is only temporary: The CBE added that the necessary measures will be taken to lower inflation to 13% by the end of next year, and that the bank envisages “a measured easing of the monetary stance” as soon as underlying inflation begins to slow. "We expect the interest rate decision to be a temporary measure to target inflation," Vice Minister of Finance Mohamed Maait told Reuters. "We expect inflation to fall in early 2018 and thus (we can) begin cutting interest rates." Government sources have reiterated that the move was temporary in statements to Al Masry Al Youm.

Impact on the FY2017-18 budget: This latest rate hike, and the 200 bps hike from last May, were not taken into account in the FY2017-18, which parliament passed last week, said Maait. The interest on current and future debt was calculated at EGP 381 bn, Maait tells Reuters. He expected adjustments to that figure in the light of the change in borrowing costs. Sources from the Finance Ministry tell Al Mal that the latest hike could raise the budget deficit by another EGP 30 bn. The budget, which has yet to be ratified by President Abdel Fattah El Sisi, projects a budget deficit of EGP 370 bn.

“The impact of [Thursday’s] hike would be diluted as banks are unlikely to pass it on to their deposit and savings rate,” said CI Capital’s Hany Farahat — the sole economist polled by Reuters and Bloomberg to predict the hike was coming. Banque Misr Chairman Mohamed El Etreby announced that his bank would hold interest rates on 20%-yielding deposit certificates, according to Al Masry Al Youm. Top state-owned banks will await until their Alco (assets and liabilities committees) meetings this week to determine how they will move as a result of the hike, Youm7 reports. Farahat notes that the hikes will have a very minimal impact on inflation.

Egypt’s business sector, still reeling from last May’s 200 bps hike, denounced the move. “The [latest] interest rate hikes will have a negative impact on consumer prices in the coming period,” said the head of the food industries division of the Federation of Egyptian Industries (FEI), Ashraf El Gazayerli. He tells Al Mal that raising borrowing costs will be passed on to the consumer. The interest rate increase "will have a devastating impact on industry (in general) and the pharmaceutical sector," SEDICO Pharmaceutical Company CEO Hossam Aboul El Enein tells Reuters. Top executives from Fancy Food, Spinney’s Egypt, and Universal Group also took to the pages of Al Mal to raise their concerns about the interest rate hikes. Some are projecting inflation to rise 5-7% while others are saying that the move may lead to further cuts in CAPEX.

Banking sector heads who spoke up relayed a more positive message. National Bank of Egypt President Hisham Okasha defended the move, saying it was necessary to keep inflation resulting from the price increases in fuel and electricity at bay, AMAY reports. Other banking sector executives to come out praising the move include Emirates NBD’s Deputy Managing Director Sahar El Damaty, and Suez Canal Bank president Hassan Refai.

Meanwhile, MPs of the Support Egypt Coalition are calling for an urgent party meeting to discuss the interest rate hikes and its impact on industry. They are also requesting that a special session to probe the hikes be taken, Al Shorouk reports.

CBE denies it had a hand in EGP’s appreciation: CBE Governor Tarek Amer assured President Abdel Fattah El Sisi that the CBE had no hand in the EGP’s appreciation of around 1.3% last week in a meeting on Saturday. He told the president that market forces were entirely behind the strengthening of the currency — which is proving profitable for carry traders, according to an Ittihadiya statement picked up Al Borsa. The denial comes as analysts had speculated last week that the CBE had been artificially strengthening the EGP. Amer’s denials had been preceded by another from CBE Deputy Governor Gamal Negm to MENA news agency, where he reiterated that the CBE does not control currency fluctuations. Significant foreign inflows last week contributed to the strengthening of the local currency. Negm said that inflows during last week alone, which saw a single-day record of USD 704 mn, had amounted to around USD 2 bn.

"Right now, it’s a one way bet for the pound to appreciate, but if inflation continues, the risk changes to the downside," Mohsin Khan, Washington-based senior fellow at Atlantic Council’s Rafik Hariri Center for the Middle East, tells Bloomberg’s Ahmed Namatallah and Ahmed Feteha. "More volatility in the exchange rate would be good because it would show agents that market forces are at work and that the CBE’s main focus is bringing down inflation," he added.

With bond yields reaching 21% — the highest after Argentina — EM investors continue to be attracted to the country’s debt. Inflows in t-bills drew in around USD 9 bn in foreign inflows since the EGP was floated back in November, the highest level since 2010. "If you’re an emerging market investor, you can come in and buy the world’s second-cheapest currency, offering very high yields and very low volatility,” said Renaissance Capital’s global chief economist Charles Robertson.

The Electricity Ministry raised the price of electricity by around 42% for household consumers last Thursday, according to Reuters. The move, which follows an increase to the prices of fuel last week, removes subsidies entirely for the highest-tier consumers. The new prices for household consumers per month are broken down as follows:

• The 0-50 KW consumption bracket will pay EGP 0.13 per KW, up from EGP 0.11;

• The 51-100 KW consumption bracket will pay EGP 0.22 per KW, up from EGP 0.19;
• The 100-200 KW consumption bracket will pay EGP 0.22 per KW, up from EGP 0.19;
• The 200-350 KW consumption bracket will pay EGP 0.55 per KW, up from EGP 0.45;
• The 350-650 KW consumption bracket will pay EGP 0.75 per KW, up from EGP 0.55;
• The 650-1,000 KW consumption bracket will pay EGP 1.25 per KW, up from EGP 0.95;
• The 1,000+ KW consumption bracket will pay EGP 1.35 per KW, up from EGP 0.95.

The prices of electricity for industrial and commercial use were also increased across the different brackets, Al Mal reports. Heavy industries will be paying a high of EGP 0.654 per KW during peak hours and EGP 0.982 per KW in the off-peak. The monthly tariff for commercial usage changed acrossfive brackets as follows:

• The 0-100 KW consumption bracket will pay EGP 0.45 per KW, up from EGP 0.35;
• The 100-250 KW consumption bracket will pay EGP 0.84 per KW, up from EGP 0.69;
• The 250-600 KW consumption bracket will pay EGP 0.96 per KW, up from EGP 0.69;
• The 600-1,000 KW consumption bracket will pay EGP 1.35 per KW, up from EGP 0.96;
• The 1,000+ KW consumption bracket will pay EGP 1.40 per KW, up from EGP 0.96.

The state will continue to subsidize power for another five years until 2022 rather than eliminate them by 2019 as had been originally planned “owing to the conditions related to the big increase in the exchange rate,” the minister also confirmed. This latest increase is expected to save the state around EGP 30 bn in energy subsidies, bringing the bill down to EGP 52.8 bn in the FY2017-18. Customers in the highest consumption tiers will be paying a higher price for power than its cost of production of EGP 0.97 per KW and the profit generated will be used partially to cover the subsidy for the lowest consumption bracket, Shaker had said previously.

Metro and railway ticket prices to rise by 4Q18: The price of Metro tickets will increase to a range of EGP 2-4 by 4Q18 depending on the distance traveled on each line, up from a set EGP 2 regardless of distance traveled, Transport Minister Hisham Arafat tells AMAY in an interview. The prices of railway tickets will also be rising next year, he adds, justifying the increases with the arrival of new locomotives and the implementation of upgrades that will improve service quality. These upgrades will cost the Transport Ministry more than EGP 130 bn, according to Arafat, who said that the Cairo Metro Line 3 alone is costing close to EGP 80 bn.

Last March’s doubling of metro ticket prices had was another painful blow to Egypt’s poor, writes Hamza Hindawi for the Associated Press. His piece looks at how the metro has ended up being a burden of the government alone precisely because Egypt’s rich have shun it, and major commerce at the metro stations are limited to street peddlers.

IPO WATCH - Baker McKenzie was reportedly selected as legal advisor on the listing of up to 24% of state energy company Enppi, sources tell Al Borsa. The international law firm apparently beat out four of the country’s most prominent law firms: Matouk Bassiouny, Zaki Hashem & Partners, and Zulficar & Partners. Aswe noted last week, a consortium led by CI Capital and includes Jefferies International Limited and Emirates NBD Capital Limited was selected as as lead managers and bookrunners of the listing. Now that the whole team has been assembled, meetings on the IPO will begin in earnest this week, the source added.

Possible delay in the IPO? These sources also told the newspaper that the IPO may take place in early 2018 once all approvals have been obtained. If true, this would mean that the government had decided to delay the IPO from the 4Q17 date announced by Investment and International Cooperation Minister Sahar Nasr last week.

INVESTMENT WATCH - Spanish companies are looking to ramp up their investments in Egypt, company representatives told Investment and International Cooperation Minister Sahar Nasr on the sidelines of the Crans Montana forum in Barcelona. Mediterrania Capital Partners is planning to increase its capital in Egypt to EUR 300 mn and will send a delegation to Egypt soon to study further investment opportunities, according to a ministry statement. Sanitary ware producer Roca is also looking to establish a new factory in 6th of October, while roller coating manufacturer GomPlast is set to establish its first project in Damietta, according to company officials. Shipping services company Salvat Logística is also eyeing establishing a logistics center in Egypt to serve its Middle East operations. A Spanish business delegation will also visit Egypt soon, President of Foment del Treball Nacional, a federation of Catalan entrepreneurs, Joaquím Gay de Montella told Nasr.

Meanwhile, the European Institute of the Mediterranean (IEMed) plans on holding a conference this year to boost investments in Egypt and increase economic trade between Egypt and the EU, IEMed’s Managing Director Josep Ferré said. The delegation will include representatives from companies in the renewable energy, car manufacturing, food, logistics, and infrastructure sectors.

Oil Ministry planning second gold exploration tender for 2017: The Oil Ministry is planning another gold exploration tender for 2017 — it’s second this year after last April’s offering. Oil Minister Tarek El Molla tells Youm7 that the ministry has prepared a list of new concessions that will be offered, adding that the ministry is ready to launch the tender. He offers no details on the whereabouts of the concessions or details on the second tender. More importantly, his statement lacks any detail on whether the new god exploration tender will follow the same production-sharing agreement, which was met with disdain and scared off Centamin, Aton Resources, and Thani Stratex, the three largest mining companies in Egypt. The winners of the last gold tender were UK’s Veritas Mining Limited, Ghassan Spain Investment, Egypt’s East Gas Company and Resolute Egypt, who will collectively invest USD 41.3 mn.

CIB was named Euromoney’s Best Bank in the Emerging Markets for 2017 at an awards ceremony in London on Tuesday, making it the first bank in Egypt, the Middle East, and Africa to take home the honor, the bank said in an emailed statement (pdf). “Posting high returns as a universal bank in [emerging] markets, where interest rates are naturally high, can be easy in the good times. To sustain it during the inevitably volatile economic and political transitions requires nimble risk management and deep local management. Often treated as a proxy for the Egyptian economy, CIB ticks both those boxes and many more,” Euromoney says of our good friends. CIB Chairman and Managing Director Hisham Ezz Al Arab said the bank’s success stems largely from “staying away from the emotional side of decision-making [and] anticipating where a problem could arise and preparing for it beforehand.”

EARNINGS WATCH- Qalaa Holdings reported a net loss after minority interest of EGP 383.5 mn in 1Q207, compared to a loss of EGP 281.7 7mn in 1Q2016, according to the company's earnings release. While revenues grew by 22% year-on-year for the period, “bottom-line profitability was weighed down by losses at the company’s discontinued operations, namely Africa Railways and Designopolis,” the statement reads.“Management’s ultimate goal is to continue streamlining and reshaping our investments in a manner that allows us to maximize value from the prevailing macro trends,”said Qalaa Holdings Co-Founder and Managing Director Hisham El-Khazindar. “Our efforts are already bearing fruit with core platforms delivering a steady improvement in financial and operational results, and with Qalaa on a steady course to deliver sustainable profitability at the consolidated level by 2018.”

CLARIFICATION - We had run a story last week on the Military Production Ministry receiving funding offers for its USD 2 bn solar panel factory from the European Bank for Reconstruction and Development (EBRD) from an Al Borsa article which quoted statements by Military Production Minister Mohamed Al Assar. We have since been informed that the EBRD is not affiliated with the project.

23 soldiers were killed in twin car bombings at two military checkpoints in North Sinai’s Rafah on Friday, the Armed Forces said in a statement. Daesh claimed responsibility for the attack. Military forces killed 40 militants and destroyed six vehicles during a raid, according to the Armed Forces. The US State Department issued a statement condemning the attacks. Statements of condemnation also came from Saudi King Salman bin Abdulaziz. Hamas leader Ismail Haniyeh also vowed to beef up security along Egypt’s border with Gaza to ensure against security breaches in Egypt, Al Shorouk reports.

Separately, the Hasm militant group — an offshoot of Daesh — claimed responsibility for the assassination of a police officer in a drive-by shooting in Greater Cairo’s Qalyubiyah on Friday, according to the Associated Press. Two policemen were also killed and nine others injured in a roadside bomb explosions in Al-Arish yesterday, Al Masry Al Youm reports. It remains unclear who was behind the attack.

Egypt reportedly cut back on its fuel shipments to Gaza by 33-50% on Saturday after the Ramallah-based Palestinian Authority froze the bank transfers that were funding the shipments, Gaza’s power authority said, according to Maan News Agency. The move is part of the PA’s efforts to curb the warming of ties between Hamas and Egypt, which most recently saw discussions between the two sides on an agreement that would see Egypt supply the group with security equipment. The news coincided with Palestinian President Mahmoud Abbas’ arrival in Cairo last night for a meeting with President Abdel Fattah El Sisi today, Al Masry Al Youm reports.

Egyptian police have reportedly arrested 34 Uighur Chinese students, 12 of whom have been deported, while the remainder are in detention and awaiting deportation, the New York Times reports. The Uighurs are a Sunni Muslim Chinese minority living in a western region of China which has seen ethnic strife. The Chinese government has recently been ordering Uighur students studying abroad to return to China, according to Reuters. Human Rights Watch says the arrests began on 3 July, following a meeting in mid-June between senior security officials from both countries. The rights group puts the number of arrests at 62.