KEY THEMES
The Monetary Policy Committee (MPC) is meeting today while Egypt as well as most emerging markets (EMs) are racing against time on two fronts. First, EM countries need to roll out vaccinations faster than the COVID-19 spreading pace. As vaccination campaigns kicked off, a new wave of COVID-19 cases rose in mid-March. The vaccination process is still slow while the number of cases is on the rise, a sign that the pandemic is not yet under full control.
Secondly, while EM countries try to keep domestic inflation in check, commodity prices have been spiking since mid-2020. For net commodity importing countries, this increases the balance of payments risk and inflation risks. In March this year, global commodity prices weakened due to cheaper oil, higher U.S. yields, and a stronger U.S. dollar. Yet, since April, the sentiment towards commodities has improved again. Agricultural commodity prices are already close to their peak levels in 2008 and 2011. However, the outlook for global commodity prices is still mixed.
On one hand, the surge in COVID-19 cases in India and its consequential erosive effect on demand should weigh on oil prices, given the expected OPEC+ production increase in May. Meanwhile, the wider global vaccination process in advanced countries and the growing optimism about a faster-than-expected recovery should drive the U.S. dollar even higher with U.S. real yields somewhat increasing. These factors pose more downward pressure on gold prices. On the other hand, global agricultural commodity prices should improve as economies recover on a larger scale.