The Monetary Policy Committee (MPC) and the Central Bank of Egypt (CBE) kept policy rates unchanged at its meeting on Thursday, in line with our expectation. We had argued that June’s elevated 14% Y-o-Y headline inflation was already expected when the CBE raised policy rates at its prior meeting by an aggressive 100bps, while the value-added tax (VAT) discussions at Parliament has not yet been finalised resulting in a likely hold decision by CBE. Indeed, the MPC’s statement highlighted that June’s inflation recorded a slowdown on a monthly basis, while the elevated inflation outturn was largely driven by unfavourable base effect. The statement stressed that it would keep an eye on economic developments, especially on the fiscal side, when assessing future inflation trends. We see it as a reiteration of previous statement referring to the near-term planned implementation of the VAT. We maintain our forecast of another 50-100bps hike in 2H16 taking into consideration the implementation of the VAT, as well as a likely adjustment to the EGP, especially in light of the negotiations the government is currently undertaking to finalise a loan agreement with the International Monetary Fund (IMF). (CBE, Mohamed Abu Basha)