Egypt M2 Money Supply Rises to Five-Year High in July

Egypt’s M2 money supply growth accelerated to 19.4 percent in the year to the end of July, the central bank said on Thursday, its fastest pace in over five years and a possible portent of continued high inflation over the coming year.

Economists said the monetary growth might be explained by an increase in direct government borrowing from the central bank as it works to plug a widening budget deficit after two and a half months of renewed political and economic turmoil.

The government borrowed 82.2 billion Egyptian pounds ($11.8 billion) directly from the central bank in the first seven months of 2013 and 145.2 billion pounds in the 12 months since July of last year, according to central bank figures.

The high money supply growth could also be caused by restrictions the central bank has placed on transferring funds out of the country.

“If you can’t get your money out of the country, you have no choice but to deposit it with the banks,” said an economist based outside of Egypt.

Economists said the higher money supply could lead to inflation as more pounds chase the same amount of goods and services.

“It’s an indicator of inflationary pressure,” said Mona Mansour of CI Capital. “We’re expecting inflation to be higher.”

Egypt’s urban consumer inflation surged to an annual 10.3 percent in July, its highest in two years.

Money supply rose to 1.316 trillion Egyptian pounds ($188 billion) from 1.296 trillion at the end of June and 1.102 trillion at the end of July 2012. It is the fastest year-on-year monetary growth since April 2008.

Following is a table of the latest M2 figures in billions of Egyptian pounds, according to the central bank’s website

(www.cbe.org.eg):