Policy response leaves Egypt better placed to weather war

Egypt hasn’t been involved directly in the conflict in the Middle East but it is one of the most vulnerable EMs to the indirect effects, especially higher energy prices and tighter global financial conditions. Officials’ response in the form of allowing the pound to weaken and hiking local fuel prices will aid the adjustment though and provide encouragement about the commitment to orthodox policymaking. The central bank will have to tread more carefully with its easing cycle but it would require a sharp and sustained rise in global energy prices and/or severe pressure on the pound before it hiked rates.