**#1 It’s interest rate day. The central bank’s Monetary Policy Committee will have to juggle fallout from the Emerging Markets Zombie Apocalypse, the imperative to lower interest rates to turbocharge corporate growth (and real job creation), higher yields on government bonds, a potentially weaker EGP, and inflation. Economists surveyed by both Reuters and Bloomberg unanimously believe that the CBE will keep interest rates on hold in light of a challenging macroeconomic climate.

The EM Zombie Apocalypse: The CBE cited the selloff in EM as one of the reasons it left rates unchanged at its last meeting. In the time since, borrowing costs have gone up significantly for EMs as investors demand higher yields for debt. Compounding the matter for Egypt are reports of declining appetite for the EGP despite it having remained fairly stable (it has lost just 1.7% of its value against the USD in the past six months, while a broader index of EM currencies has slid c. 7.8%). Carry trade outflows have came in at USD 6 bn between April and June, putting pressure on the EGP. The upside is that the EGP is still considered moderately stable compared to other EMs, according to EFG Hermes’ Mohamed Abu Basha. “The EGP made minimal gains on the way up and will make minimal losses now that the flow has reversed,” he tells Bloomberg. “We see the spillover into Egypt largely resulting in higher domestic interest rates for longer.”

The treasury is paying a lot to borrow: The government had forecast in this year’s budget that yields on treasuries would be something along the lines of 14.7%, down from 18.5% in the previous fiscal year. Instead, yields have been averaging around 19% since the FY started in June, raising the costs of debt service in the budget and forcing the government to cancel four bond auctions. Every 1 percentage point increase in average rates raises the debt servicing bill by EGP 4-5 bn, according to the state budget. The government has since made debt control the guiding fiscal strategy and is looking to the international debt markets for financing — great, because interest rates are lower. Bad, because you’re now taking on new FX risk.

The struggles of the private sector: The private sector has been in a high interest rate climate. Companies are “reluctant to borrow for expansion because loans are expensive,” said Monsef Morsy, head of financial analysis at CI Capital in Cairo. “Credit is indeed growing, but it’s mostly to fund working capital, and not for investment.” And who can blame prospective borrowers? What kind of return on investment do you need to justify to pay credit-card interest rates when you put in a new production line?

Impact of EM apocalypse on Egypt will be reviewed next month: Egypt can withstand the impact of the emerging market selloff, said Planning Minister Hala El Said on Wednesday, according to Al Mal. The true impact of the crisis on Egypt’s fiscal and growth targets for 1Q2018-19 will be reviewed in October, she added.

Our central bank meets one day after the US Federal Reserve raised interest rates. The Fed raised its benchmark overnight lending rate a quarter of a point to a range of 2.00-2.25%, Reuters reports. It was the third time this year that the US has raised rates and came as the Fed “signalled it will forge ahead with plans to tighten policy, even as central bankers face White House pressure for low borrowing costs as well as concerns over a trade war,” the Financial Times notes. It is the first time that the Fed’s benchmark rates have been above 2% since the financial crisis in 2008, the Wall Street Journal notes.

The Fed sees another three years of growth ahead for the US economy, with Powell nearly effusive at a presser after the decision as he said, “Our economy is strong, growth is running at a healthy clip, unemployment is low, the number of people working is rising steadily, and wages are up,” he said. “Inflation is low and stable. All of these are very good signs.”

Further rate hikes could be in the cards, as Federal Reserve Chairman Jay Powell told reporters after the meeting that, “These rates remain low” and characterized the rate hike as a “gradual return to normal.” One pundit told CNBC to brace for hike rates once a quarter next year if the current macro backdrop remains in place,.

Why do we in Egypt — or other emerging markets — care so much about US rates? The higher US rates and the rosier to outlook for the US economy, the more “tourist” investors are going to flock to Amreeka. The tightening of the spread between the upside in the US and that in EM will see more risk-averse investors opt for American opportunities, sucking capital out of emerging economies, the conventional wisdom holds. Oh, and then there’s that whole, “We as a country are borrowing bns in USD” thing, as we note above and below.

**#2 EXCLUSIVE- Don’t expect samurai or panda bonds until 2019: Egypt is unlikely to issue JPY- or CNY-denominated bonds (called “samurai” and “panda” bonds in the trade) this fiscal year, a senior government source told Enterprise. The source said that the procedures for the issuance won’t be completed before next June, saying that Egypt has yet to receive the blessings from the central banks of Japan and China.

The focus for the moment is on an USD 5 bn eurobond issuance that could go to market in the coming months, our source said.

Asian roadshow to tap new pools of liquidity ahead of bond offerings: “The week after next, we will start promotional tours in the Asian markets, then Europe in preparation for issuing Eurobonds bonds,” Finance Minister Mohamed Maait said on Tuesday. While he did not specify when they would issue the bonds, Maait had previously put the window at some time between January and March 2019. Bloomberg also reported on the non-deal roadshow to drum up interest for upcoming offerings and said Egypt is in talks with Euroclear to make it easier for foreign investors to access EGP-denominated debt.

Egypt to issue sukuks next fiscal year: The government is planning to issue USD 1-2 bn in sukuks next fiscal year, the source added. The issuance will take place next year as there is currently no legislative framework that allows for it, we were told, and that legislation won’t be in place to allow an offering before the start of the FY2019-20. Egypt is one of 18 African countries that significant untapped potential in the sukuk market, Moody’s recently said.

**#3 State-backed debit card “Meeza” to roll out nationwide by December: The central bank plans to roll out a national debit card, named “Meeza,” by December, the central bank’s Sub-Governor for Payment Systems and Business Technology Ayman Hussein said yesterday, Al Ahram reports. Pensioners will be among the first to access state benefits through the cards, which will also be used to electronically deliver payments to civil servants and subsidy recipients, Hussein said. The government will also roll out by mid-2019 a contactless payment card which will be particularly useful for quick and low-value transactions such as paying for transportation, according to Hussein.

Background: We had reported last week that the Finance Ministry is preparing to roll out a national debit card system through state-owned banks as part of its new e-payments drive. The state is also reportedly planning to introduce ATMs and point-of-sale (PoS) terminals at which people would be able to pay bills and fees for various government services. The push for digital transition and financial inclusion policies comes as the government moves to make e-payments mandatory in January and grant incentives for their use. The House of Representatives had approved amendments to the Accounting Act that ban the use of paper cheques for transactions above a set threshold and make it mandatory for all government transactions to be electronic.

**#4 LEGISLATION WATCH- FRA working on Consumer Credit Act: The Financial Regulatory Authority (FRA) is driving the drafting of a new law that would govern retail financing and consumer credit, FRA head Mohamed Omran told Amwal Al Ghad. He was not specific on what the law would entail, or how it would impact and regulate the nation’s booming consumer finance industry.

We’ll know more soon: Omran said a draft of the bill will be put out for public consultation sometime in the coming week. The CBE had cited a lack of regulation in the consumer finance market as one of the reasons why it stepped earlier this month with a directive to banks aiming to regulate their exposure to companies that sell on installments consumer goods such as appliances and automobiles.

LEGISLATION WATCH- E-commerce Act to be ready in 1H2019? Legislation to regulate e-commerce currently being drafted by the CIT Ministry will be ready to present to the Madbouly Cabinet in 1H2019, CIT Ministry official Mohamed Hegazy said at the E-commerce Summit in Egypt on Wednesday, according to Amwal Al Ghad. While Hegazy gave further details, the local press had noted back in December that the that the law was primarily concerned with establishing a tax framework for the industry. Government sources had told us back in June that the Finance Ministry was looking to impose a VAT on e-commerce. Some of the largest e-commerce platforms operating in Egypt, among them Jumia and Amazon subsidiary Souq.com have (at least publicly) expressed support for regulating the industry.

IFC has invested EGP 1.2 bn in Egypt’s e-commerce infrastructure, supporting state’s digital transformation: The International Finance Corporation (IFC) has invested some EGP 1.2 bn in upgrading Egypt’s e-commerce infrastructure and to support the state’s digitization drive, said IFC Country Manager for Egypt Walid Labadi, Al Mal reports. Labadi did break down the individual investments, but Labadi noted e-payments platforms such as Fawry have benefited from financing or investment from the IFC.

**#5 IPO WATCH- El Farasha revives plans for an IPO in 2H2019: El Farasha for Printing has revived plans to list on the EGX, according to statements attributed to Chairman Mohamed Khalil by Al Mal. The listing, originally planned for this year, is expected to take place in 2H2019, he said, adding that the company was waiting for an opportune time in the market. He implied that the company was looking to hire investment banker to manage the IPO, which had previously been tipped to go to Beltone Financial. Khalil did not specify the size of the listing. Last we heard, El Farasha was expected to offer for sale up to 35% of the company in 1Q2018.

IPO WATCH- E-finance to IPO in 2H2019: State-run electronic payments company e-finance is planning an IPO in 2H2019, Chairman and Managing Ibrahim Sarhan said in a press conference on Wednesday, according to Al Mal. The company, which manages the state’s electronic payments and financial infrastructure, is one of the 23 state companies that are listing (or that are already listed, but offering new stakes to the market) as part of the state privatization program. The timing could place it among the companies of the second phase of the program, which will primarily involve new listings. Sarhan did not give further details beyond stating that the firm’s board will officially sanction the decision soon.

Don’t expect car prices to drop when tariffs on EU imports fall to zero, says Ghabbour: It is unlikely that prices on imported EU vehicles would drop once tariffs on them fall to zero on 1 January, GB Auto Chairman Raouf Ghabbour said at the Automech Formula 2018 conference on Wednesday. Ghabbour pointed to the continued rise in prices that have accompanied every subsequent cut in tariffs on EU and Turkish car imports that came with the agreement with the EU. He cites the price competitiveness of Japan and Korean-made cars in Egypt as evidence that the agreement has failed to lower prices in the automotive sector, according to Al Mal.

Automotive directive fatigue has set in: Talk of an automotive directive is essentially a moot point at this juncture, Ghabbour added. The measure has been on the drafting table since 2009 as part of a bit to protect the domestic assembly industry against what it says is unfair competition from Turkish, Moroccan and EU imports. The zombie legislation — originally meant to grant incentives to assemblers to move up the value chain to manufacturing to compete with EU and other imports — is currently in limbo, as the Madbouly Cabinet looks to tweak it. Trade and Industry Minister Amr Nassar had said last month that the ministry is planning to have the automotive directive drafted and ready before the House of Representatives reconvenes for the fall legislative session in October.

Nonetheless, Ghabbour sees prices in Egypt as stabilizing, despite marginal increases of 2-3% on auto parts imported by local assemblers. He sees sales on cars reaching 130-140k by the end of the year.

PSA for gearheads- Mercedes launched its new C Class and E Class lineups in Egypt at Automech Formula. You can read all the details in the company’s statement here (pdf).