The Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) kept its key policy rates on hold, according to a statement on its website. The overnight deposit rate was left 9.25%, the overnight lending rate at 10.25%, main operation at 9.75% and the discount rate at 9.75%.   Decision likely driven by stable inflation in December: The decision comes in line with our expectation. We expected a stable inflation reading in December and the fact that CBE just increased rates in its previous meeting by 50 basis points would prompt rates to remain on hold. Inflation stood at 11.1% Y-o-Y in December, showing a stable reading following a few months of acceleration. All inflation gauges showed stability with core inflation decelerating marginally to 7.2% in December from 7.4% in November.   CBE voices concern over underlying inflationary pressures: While noting that food inflation abated in December partially, thanks to “recent government measures to control the prices of basic food items” and imported inflation remains subdued, the CBE noted that “potential underlying inflationary pressures remain a concern.” The statement ended with a clear statement of the CBE’s commitment to price stability, saying it will closely monitor economic developments, particularly on the fiscal side and its effect on inflation outlook, in a clear hint – in our view – towards the awaited implementation of the value-added tax (VAT).   We continue to expect a rate hike in 2016: We reiterate our view that we are likely to see another rate hike in 2016, driven by a weaker EGP and potential fiscal consolidation measures. We read much confirmation for our view within the MPC’s latest statement’s emphasis on underlying inflationary pressures and fiscal policy. The recent decision by the CBE to ease foreign currency deposit limits for a number of sectors feeds into our expectation that the bank is setting the EGP on an adjustment path, one that will potentially end with a devaluation. On the other hand, the government is yet to introduce the value-added tax (VAT), after presenting the law to Parliament, in order to resume its fiscal consolidation reforms. Visibility on the timing of both events remains unclear: devaluation hinges largely upon the ability of the CBE to build a liquidity buffer to enable it to control FX markets, while timing of presenting the VAT law to Parliament, which first convened this month, will be decided upon after the government presents its economic programme to Parliament and receives its vote of confidence. (CBE, Mohamed Abu Basha)