CBE decision Archives

HC: We believe that the MPC will opt to delay the cut until later in 2024

Posted on October 13, 2024 by Marwa Nakhla

In light of Egypt’s macro economy developments and the geopolitical tensions, HC Securities & Investment expects the MPC to keep the interest rates unchanged in its upcoming meeting scheduled October 17, 2024

Head of Equity Research at HC, Nemat Choucri commented: “Egypt’s external position showed signs of improvement with (1) the 4Q23/24 balance of payments (BoP) surplus widening by c9x y-o-y and c22% q-o-q to USD5.55bn, (2) the banking sector remaining in a net foreign assets (NFA) position of USD9.73bn in August, however narrower by USD3.54bn m-o-m, and reversing a net foreign liability (NFL) position of USD25.9bn a year earlier, (3) net international reserves (NIR) increasing by USD140m m-o-m in September to USD46.737bn from USD46.597bn in August, and (4) Egypt’s 1-year CDS dropping to 407 currently, from 857 bps on 1 January. However, Egypt’s business activity remains subdued due to the high interest rate environment impacting private sector investments. Egypt’s September PMI index dropped below the 50.0 mark to 48.8 after it surpassed it in August, signaling a renewed decline in business conditions across the Egyptian non-oil private sector, as rising price pressures dampened sales and slowed business activity and 4Q23/24 GDP reached 2.4%, translating into a GDP growth of 2.4% for FY23/24, down from 3.8% a year earlier, also impacted by geopolitical tensions. To overcome this, the government plans to announce investment incentives and a tax relief package to encourage private local and foreign investments to drive GDP growth. Regarding inflation, we expect the headline inflation to accelerate by 1.0% m-o-m to 26.5% y-o-y in October due to the electricity price increases to the household, retail, and industrial sectors in September and potentially higher energy prices in October with the government’s committee in charge of the indexation of gasoline and diesel prices scheduled to meet in October to discuss 4Q24 gasoline and diesel prices, and the Egyptian Natural Gas Holding Company (EGAS) considering increasing natural gas prices for the industrial sector by c10–30% depending on each industry, due to higher natural gas import costs. Regarding interest rates, Egypt’s latest 12-month average T-bill rate of 26.238%, offers a real interest rate, of 3.00% (net of 15.0% tax on US and UK investors and using our inflation estimate one year from now of 19.3%), higher than the real interest rate on the US 12-month T-bill of 1.86%, yet lower than the real interest rate on Turkey’s 12-month T-bill rate of 17.4%. So although a rate cut is needed to drive GDP growth, we believe that the MPC will opt to delay the cut until later in the year given the expected higher inflation in October, and hence we expect the MPC to maintain rates at its 17 October meeting.”

It is worth mentioning that, in its 5 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation accelerated to 26.4% y-o-y in September from 26.2% y-o-y in August, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 2.1% m-o-m compared to a similar 2.1% m-o-m increase in August. On the global front, on 19 September, the US Federal Reserve cut the federal funds rate by 50 bps to 4.75-5.00% after it hiked rates by 525 bps since it started its tightening policy in 2022. Also, the European Central Bank (ECB) lowered the key ECB interest rates for the main refinancing operations, the marginal lending and deposit facility, by 25 bps in June and 25 bps in September to 3.65%, 3.90%, and 3.52%, respectively.

About HC Securities & Investment

HC Securities & Investment is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody and online trading through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.6bn. HC Asset Management now manages 7 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP7bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.

HC expects the MPC to hold rates at its 21 December meeting

Posted on December 17, 2023 by Marwa Nakhla

HC expects the MPC to hold rates at its 21 December meeting

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled December 21^st. Based on Egypt’s current situation, they expect the CBE to keep the policy rates unchanged.

MPCFinancials analyst and economist at HC, Heba Monir commented: “ We reduced our expectation for Egypt’s inflation, given the recent deceleration over the past two consecutive months, estimating urban inflation to rise by 1.9% m-o-m and 34.4% y-o-y in December, reflecting supply shortages of essential commodities and products mainly caused by the curbing of importation, exporting some crops and the USD shortage. The Egyptian government downward revised its real GDP growth forecast for FY23/24 to 3.5% from an earlier forecast of 4.2%, according to the minister of planning, lower than our forecast of 4.0%. According to data from the Central Bank of Egypt, Egypt’s banking sector’s net foreign liabilities (NFL) widened by USD340m m-o-m in October to USD27.2bn. Excluding the CBE, the banking sector’s NFL narrowed by USD482m m-o-m to USD15.9bn. The increase in NFL was mainly due to a widening in the CBE’s NFL by USD823m m-o-m to USD11.3bn, possibly related to Egypt’s external debt repayment. Also, based on our calculations, the gap between the parallel and official FX rates widened to as much as c60% and to c30% between the Real Exchange Rate (RER) and Real Effective Exchange Rate (REER) models. On a more positive note, net international reserves (NIR) increased by c4.9% y-o-y and 0.20% m-o-m to USD35.2bn in November, and deposits not included in the official reserves increased by c11.8% m-o-m and 3.71x y-o-y to USD6.18bn in November. Also, Egypt’s 1-year CDS dropped to 870 bps from its peak at 1,577 bps in the last MPC’s meeting, which translates into an average pre-tax required rate of return by investors of 27.9%, based on our calculations, derived by assigning a 15% weight to the required return by foreign investors and 85% weight to the required return by banks. The 27.9% required return implies a positive real interest rate of 0.11%, assuming an average 12M inflation rate of 23.6% and a 15% tax imposed on US and European investors treasury holdings versus a current negative real interest rate of 0.50% based on the latest 12M T-bills rate of 27.2%. Recently, the Egyptian government resumed talks with the International Monetary Fund (IMF) regarding completing the first and second reviews of its USD3.0bn Extended Fund Facility (EFF) and additional financing, which is crucial to ensuring the implementation of the policy package, according to the director of the IMF’s Communications Department. On the global front, the inflationary pressures had eased due to major economies’ monetary tightening and favorable base effects. Therefore, based on the recent deceleration of supply-driven inflation, the high likelihood that the Federal Reserve would maintain interest rates at its meeting today, and the improvement in Egypt’s CDS, we expect the MPC to hold rates at its 21 December meeting. We don’t rule out the possibility of a policy rate hike in the case of a movement in the FX rate; however, we see it as unlikely in the coming MPC meeting.”

It is worth mentioning that, in its 2 November meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending at 19.25% and 20.25%, respectively, after it increased it by 300 bps y-t-d and 800 bps in 2022. Egypt’s annual headline inflation decelerated to 34.6% in November from 35.8% y-o-y in October, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.3% m-o-m in November compared to a 1.0% m-o-m increase in the previous month. On the global front, the US Federal Reserve raised interest rates in July by 25 bps to a range of 5.25-5.50%, a total of 100 bps y-t-d and 425 bps in 2022, with most expectations likely to maintain rates in its meeting today, according to expectations.

About HC Securities & Investment

Egypt currently relies on foreign portfolio inflows as a main source for foreign currency, HC expects the CBE to keep interest rates unchanged

Posted on March 14, 2021 by Marwa Nakhla

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled March 18^th and based on Egypt’s current situation, they expect the CBE to keep interest rates unchanged.

Head of macro and financials at HC, Monette Doss commented: “February inflation figures came in lower than our estimates of 4.9% y-o-y and 0.5% m-o-m, which we believe reflects suppressed consumer demand currently. Over the rest of 2021, we expect monthly inflation to average 0.8% m-o-m and 6.4% y-o-y accounting for possible domestic price shocks following the recent commodity price rally and possible recovery in consumer confidence following the successful rollout of the COVID-19 vaccine. Our numbers rule out domestic gasoline price increases since the current market price reflects a Brent price of USD61/barrel (as estimated in the FY20/21 government budget). We estimate FY20/21e average Brent price at USD54/barrel, as it averaged USD44/barrel in 1H20/21 while Bloomberg consensus estimates for 2H20/21 come at USD62/barrel. We, therefore, expect 2021 inflation to remain within the CBE’s target range of 7% (+/-2%) for 4Q22. On the external position front, however, we believe that Egypt currently relies on foreign portfolio inflows as a main source for foreign currency given slashed tourism revenue and low exportation activity. Hence, with treasury yield hikes in the USA as well as different emerging markets such as Turkey, we believe that the CBE has limited room to undertake further interest rate cuts in its upcoming meeting. We believe that global interest rate hikes reflected in a decline in average monthly portfolio inflows in Egyptian treasuries to USD1.25bn during January and February from USD2.29bn in 2H20. We, accordingly, expect the MPC to keep rates unchanged in its upcoming meeting. That said, we note that Egyptian 12M treasuries currently offer a real yield of 5.1% (given a nominal yield of 13.3%, 15% tax rate on treasuries’ income for American and European investors and our 2021e average inflation forecast of c6%) which is higher than Turkey’s real yield of 2.0% (given nominal yield of 15.7% on 14M treasuries, zero tax rate, and Bloomberg 2021 inflation forecast of 13.7%).”

It is worth mentioning that, in its last meeting on 4 February, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to keep rates unchanged for the second consecutive time after undertaking cuts of 50 bps twice in its September and November 2020 meetings. Egypt’s annual headline inflation accelerated to 4.5% in February from 4.3% in the previous month, with monthly inflation increasing 0.2% m-o-m reversing a decline of 0.4% m-o-m in January, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).

In light of Egypt’s macro economy developments and the geopolitical tensions, HC Securities & Investment expects the MPC to keep the interest rates unchanged in its upcoming meeting scheduled October 17, 2024

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled December 21st. Based on Egypt’s current situation, they expect the CBE to keep the policy rates unchanged.

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled December 21^st. Based on Egypt’s current situation, they expect the CBE to keep the policy rates unchanged.