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Egypt Consumer Prices (Oct.)

Egypt’s headline inflation rate eased to 6.3% y/y in October and is likely to remain around 6.0-6.5% over the rest of this year and in early 2022. Against this backdrop, we think the Central Bank of Egypt (CBE) will keep interest rates on hold for the time being.
James Swanston Middle East and North Africa Economist
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SAMA likely has more to do to ease liquidity concerns

Reports that the Saudi Central Bank (SAMA) has injected liquidity into the banking sector appears to be a consequence of a lack of FX intervention (despite high oil prices), tight fiscal policy and strong credit growth. SAMA appears keen to sustain robust lending growth, but that will probably require it to maintain its focus on providing liquidity to banks, rather than draining it, over the coming months. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

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Region’s financial markets routed

Risk-off sentiment and the sell-off in EM financial markets have hit the Middle East and North Africa hard. Having been the top regional performer earlier in the year, the MSCI Arabian Markets Index has fallen by nearly 20% since mid-April. Sovereign dollar bond spreads have widened across the board, particularly in Egypt and in Tunisia – the latter appears to be hurtling toward a default. With developed market central banks set to deliver more hikes over the rest of this year and next, we suspect that equities in the Middle East and North Africa (and EMs more generally) will continue to struggle. Meanwhile, sovereign dollar bond spreads could widen further, and currencies in North Africa are likely to come under greater pressure.

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Saudi Arabia GDP (Q3, Flash Estimate)

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Egypt inflation, Saudi budget, Bahrain’s fiscal plan

Rising wheat and gas prices have added to concerns about inflation in Egypt, raising the risk that the central bank fails to deliver the interest rate cuts that we currently anticipate next year. Elsewhere, Saudi Q3 budget figures painted a positive picture but, even with oil receipts set to rise, officials seem intent on keeping policy tight for the time being. Fiscal consolidation is also being lined up in Bahrain, although we still think that the country will need financial assistance from the rest of the Gulf to meet its external debt repayments over the coming decade.

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Saudi recovery set up for strong end to the year

Saudi Arabia’s economic recovery looks to have picked up speed in Q3 and should remain strong over the rest of this year and 2022, underpinned by rising oil output.

4 November 2021
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