Inflation levels in Egypt Archives

HC expects the CBE to cut interest rates by 150 bps at its upcoming

Posted on April 13, 2025April 16, 2025 by Marwa Nakhla

In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment expects the CBE to cut interest rates by 150 bps at its upcoming April 17, 2025 meeting.

Financials analyst and economist at HC, Heba Monir commented: “ Egypt’s external position witnessed a mixed performance with (1) the banking sector’s net foreign asset (NFA) position widening by USD1.48bn m-o-m to USD10.2bn in February from USD8.71bn in January, reversing a net foreign liability (NFL) position of USD22.0bn a year earlier, on narrowing mainly the banking sector’s NFL position (excluding the CBE) by USD1.38bn m-o-m, reflecting lower pressures on foreign currency liquidity, (2) net international reserves (NIR) increasing by USD363m m-o-m in March to USD47.757bn from USD47.394bn in February, mainly due to a c6% m-o-m noticeable increase in gold, and deposits not included in official reserves also increasing by USD398m m-o-m to USD11.065bn in March, and (3) Egypt 1-year CDs hiking to 525 bps in April from 379 bps as of December, negatively impacted by the global economic turmoil from the US tariffs and its implications on foreign portfolio investment outflows, which in its turn impacted Egypt’s FX rate. Foreign investors sold USD1.04bn worth of treasuries in the secondary market since the beginning of this week and as of Tuesday, and the daily interbank volume jumped to USD1.12bn on Sunday from its daily average at USD150-250m, retreating to USD700m on Monday, USD300m on Tuesday and increasing again to USD955m yesterday. Domestically, real GDP grew by 4.30% y-o-y and 0.2% q-o-q in 2Q24/25 from enhanced exports. The PMI index fluctuated, retreating slightly below the 50.0 neutral mark to 49.2 in March, mainly from a weakening in the new orders after it exceeded the 50.0 mark in January and February on an easing in the inflationary pressures with improved consumer spending. Regarding inflation, March’s reading came higher than our estimate of 12.4% and higher than the Reuters consensus median estimate of 12.6%, which we attribute to higher-than-expected food and beverage prices due to seasonality, with Ramadan occurring in March. As for the T-bills auctions, yields are fluctuating, with the latest 12M T-bills auction of 24.95% reflecting a positive yield of 9.42% on the 12M inflation estimate of 11.8% (after deducting a 15% tax rate for European and US investors). The estimated average required rate of return by foreign investors on 12M T-bills is also declining to 28.0% from 29.3% in mid-February, based on our calculations, considering a lower inflation differential and the recent hike in Egypt’s 1-year CDs, close to the average interest rate on 3M T-bills of 28.24%, given the current inverted yield curve, as shown in the chart below (3M T-bills higher than 12M T-bills). From the above, we conclude that the Egyptian economy was able to contain the inflationary pressures (albeit still above the CBE’s targets; however, on a downward trend mainly due to base effect), our carry trade is still attractive, and there is a noticeable improvement in the NFA position of the banking sector, allowing the smooth recent exit of some foreign investors from our treasuries market. Therefore, we expect the MPC to cut interest rates by 150 bps at its upcoming 17 April meeting, mainly to stimulate local economic growth, considering global recessionary fears.”

It is worth mentioning that, in its 20 February 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, for the seventh consecutive times, after it hiked them by 600 bps in March 2024, bringing total rate hikes to 1,900 bps since it started its tightening policy in 2022. Egypt’s annual headline inflation accelerated to 13.6% y-o-y in March from 12.8% y-o-y in February, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.6% m-o-m compared to a 1.4% m-o-m increase in February. On the global front, on 19 March, the U.S. Federal Reserve maintained the target range for the federal funds rate at 4.25-4.50%, leaving the total cuts at 100 bps after it hiked rates by 525 bps since it started tightening policy in 2022, while the European Central Bank (ECB) lowered the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility by 25 bps on 6 March to 2.50%, 2.65% and 2.90%, respectively, bringing total cuts to 150 bps, since it started cutting rates in June 2024 after it hiked rates by 450 bps since it started its tightening policy in 2022.

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HC expects the CBE to keep interest rates unchanged in the upcoming MPC meeting

Posted on February 13, 2025February 18, 2025 by Marwa Nakhla

In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment expects the CBE to keep the interest rates unchanged in the MPC upcoming meeting scheduled February 18, 2025

Financials analyst and economist at HC, Heba Monir commented: “ Egypt’s external position witnessed a minor deterioration with: (1) the 1Q24/25 Balance of Payments (BOP) turning into an overall deficit of USD991m from a surplus of USD229m, (2) the banking sector’s net foreign asset (NFA) position narrowing by c12% m-o-m to USD5.23bn in December, while banks excluding CBE widened their net foreign liability (NFL) position by c10% m-o-m for the fifth consecutive month to USD6.42bn, and (3) Egypt’s external debt increasing by 1.52% q-o-q to USD155bn in 1Q24/25. On the positive side, signs of improvement include: (1) net international reserves (NIR) increasing by USD156m m-o-m in January 2025 to USD47.3bn from USD47.1bn in December 2024, and deposits not included in official reserves increasing by USD222m m-o-m to USD10.17bn in January, (2) Egypt’s 1-year CDS declining to 332 bps in January 2025, from 379 bps in December 2024, and (3) the PMI index surpassing the neutral mark and recording 50.7 in January, indicating improved business conditions for Egypt’s non-petroleum sectors. Regarding inflation, January’s reading came higher than our estimate of 22.8% and higher than the Reuters consensus median of 23.0%. As for the recent T-bills auctions, yields on the shorter maturity, mainly 3M T-bills, started to pick up again slowly, rising by 59 bps y-t-d to 27.5% in the latest auction. Thus, given the tightened external position and the turbulent geopolitical tension and its effect of a potentially delayed recovery of the Suez Canal revenues and the U.S. declaration of potentially displacing Gaza’s residents in several countries, including Egypt, we expect the MPC to leave interest rates unchanged at its upcoming 20 February meeting and delay rate cuts as these factors could pressure Egypt’s foreign currency inflows, considering its external debt dues and energy import bills, creating a need to maintain the attractiveness of the carry trade.”

It is worth mentioning that, in its 26 December 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, for the sixth consecutive times, after it hiked them by 600 bps in March 2024, bringing total rate hikes to 1,900 bps since it started its tightening policy in 2022. Egypt’s annual headline inflation decelerated to 24.0% y-o-y in January 2025 from 24.1% y-o-y in December 2024, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.5% m-o-m in January compared to a 0.2% m-o-m increase in December. On the global front, on 29 January, the U.S. Federal Reserve maintained the target range for the federal funds rate at 4.25-4.50%, leaving the total cuts at 100 bps after it hiked rates by 525 bps since it started tightening policy in 2022, while the European Central Bank (ECB) lowered the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility by 25 bps on 30 January to 2.75%, 2.90% and 3.15%, respectively, bringing total cuts to 125 bps, since it started cutting rates in June 2024 after it hiked rates by 450 bps since it started its tightening policy in 2022.

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HC believes the CBE is keeping interest rates unchanged in the upcoming MPC meeting

Posted on December 22, 2024December 25, 2024 by Marwa Nakhla

In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment believes the CBE is keeping the interest rates unchanged in the MPC upcoming meeting scheduled December 26, 2024

Financials analyst and economist at HC, Heba Monir commented: “Egypt’s external position remains stable; however, USD liquidity was lower than the previous month, (1) with net international reserves (NIR) increasing by USD10.0m m-o-m in November to USD46.952bn from USD46.942bn in October, the lowest increase since September 2022, which can be due to Egypt’s scheduled commitment to repay USD3bn of green and Islamic financing to Gulf banks and USD1.32bn in matured Eurobonds during November, (2) the banking sector’s net foreign assets (NFA) position narrowing by 10.8% m-o-m to USD9.21bn in October from USD10.3bn in September, reversing a net foreign liability (NFL) position of USD27.2bn a year earlier, and an NFL of USD1.41bn, excluding the CBE, and (3) Egypt’s 1-year CDS dropping to 353 currently, from 857 bps on 1 January. On the economic activity front, the PMI index rose slightly for the second consecutive month to 49.2 in November from 49.0 in October, still below the 50.0 mark, with the report showing that contraction softened from the previous month, attributing this reading to the weak customer demand. For December’s inflation, we expect it to decelerate to 24.1% y-o-y and 0.2% m-o-m, on relatively lower to stable vegetable and fruit prices due to seasonality. Regarding the exchange rate, the EGP has depreciated by c2.5% since the start of December due to a strengthening of the USD against other currencies. The latest 12M T-bill auction yielded a positive real interest rate of 2.9% over the weighted average yield of 26.24%, net of 15.0% tax on US and UK investors and factoring in our inflation estimate one-year from now of 19.4%, with this real yield subject to increase further with the inflation deceleration. From the above, we expect the MPC to leave interest rates unchanged at its upcoming 26 December meeting to keep the carry trade attractive until inflation moderates.”

It is worth mentioning that, in its 21 November 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, for the fifth consecutive times, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy in 2022. Egypt’s annual headline inflation decelerated to 25.5% y-o-y in November from 26.5% y-o-y in October, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 0.5% m-o-m in November compared to a 1.1% m-o-m increase in October. On the global front, on 18 December, the US Federal Reserve cut the federal funds rate by 25 bps to 4.25-4.50%, bringing total cuts to 100 bps 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 on 12 December to 3.15%, 3.40% and 3.00%, respectively, bringing total cuts to 100 bps, since it started cuts in June 2024 after it hiked rates by 250 bps since it started its tightening policy in 2022. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 26 December MPC meeting.

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HC: We expect the MPC to leave interest rates unchanged at its upcoming meeting.

Posted on November 18, 2024 by Marwa Nakhla

In light of Egypt’s macro economy developments and the geopolitical tensions, HC Securities & Investment expects the CBE to leave the interest rates unchanged in its upcoming meeting scheduled November 21, 2024

Financials analyst and economist at HC, Heba Monir commented: “Egypt’s external position remains stable while reflecting improvement, (1) with net international reserves (NIR) increasing by USD205m m-o-m in October to USD46.94bn from USD46.737bn in September, (2) the banking sector net foreign assets (NFA) position increasing by 6.0% m-o-m to USD10.3bn in September, reversing a net foreign liability (NFL) position of USD26.8bn a year earlier, and (3) Egypt’s 1-year CDS dropping to 349 currently, from 857 bps on 1 January. On the economic activity front, the PMI index rose slightly to 49.0 in October, 48.8 in September, recording below the 50.0 neutral, signaling that the non-petroleum sector in Egypt is still not growing. However, the sub-components to the PMI offered a mixed picture, with only the Output and New Orders indices keeping the headline measure below the neutral mark. And although October’s inflation of 26.5% came lower than our expectation of 28.5% despite the government increasing gasoline prices by c11–13%, and diesel prices by c17%, in mid October, we expect inflationary pressures to persist as November is expected to capture the full effect of the energy price increase. We also see Egypt’s carry trade as still attractive given no expected sizable EGP devaluation until year-end and in 2025 and our estimate of positive real interest rate of 2.9% on Egypt’s latest 12-month average T-bill rate of 26.241%, net of 15.0% tax on US and UK investors and factoring in our inflation estimate one year from now of 19.4%. So, given the inflationary pressures and Egypt’s expected external debt repayment in November of around USD4bn based on news flow and its repayment of USD1bn of its dues to foreign oil companies in November, we expect the MPC to leave interest rates unchanged at its upcoming 21 November meeting.”

It is worth mentioning that, in its 17 October 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 inched up to 26.5% y-o-y in October from 26.4% y-o-y in September, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.1% m-o-m compared to a 2.1% m-o-m increase in September. On the global front, on 6 November, the US Federal Reserve cut the federal funds rate by 25 bps to 4.50-4.75, bringing total cuts to 75 bps 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 October to 3.40%, 3.65% and 3.25%, respectively, bringing total cuts to 75 bps, after it hiked rates by 250 bps since it started its tightening policy in 2022. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 21 November MPC meeting.

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HC: We expect Juhayna to preserve its market share and margins

Posted on October 28, 2024November 4, 2024 by Marwa Nakhla

Juhayna Food Industries

We expect relative inflation easing to improve consumer demand and estimate JUFO’s volume to grow at a 2025–29e CAGR of c5%
Capitalizing on its leading dairy local market share, we expect JUFO to preserve its market share, margins, and increase exports. We estimate its 2025-29e EBITDA and EPS to grow at c19% and c24%, respectivel
In a recent report, HC Brokerage resumed their coverage of Juhayna Food Industries forecasting JUFO to preserve its market share and margins.

Pakinam El-Etriby, Consumers Analyst at HC commented that: “ JUFO navigating a challenging 2021–24 operating environment: In 2021, JUFO experienced a c3 pp y-o-y decline in gross profit margin (GPM) to c29% from a previous three-year average of c31%, impacted by the 2020 COVID-19 lockdowns, disrupting supply chains and energy and commodity prices. As economies began to reopen in 2021, the supply bottlenecks led to further inflationary pressures. In February 2022, the Russian-Ukrainian war worsened the situation, causing additional global supply chain disruptions, leading to higher commodities prices, with crude oil prices surging c40% y-o-y in 2022 after a c64% y-o-y increase in 2021, corn prices rising c19% in 2022 and c60% y-o-y in 2021, soybean prices increasing c13% y-o-y in 2022 and c44% y-o-y in 2021, sugar prices increasing by c5% y-o-y in 2022 and c39% y-o-y in 2021, and skimmed milk powdered (SMP) increasing c15% in 2022 and c23% y-o-y in 2021. In 2023, while commodity prices began to normalize – with oil prices dropping by c17% y-o-y, corn c19%, soybean c9%, and SMP c31% – JUFO’s 2023 GPM remained below c30% due to the several EGP devaluation rounds in October 2022 of c19% and January 2023 of c18%, as JUFO imports more than c30% of its COGS, mainly packaging and SMP, and to a lesser extent concentrates. Nevertheless, in 1H24, JUFO’s GPM improved by c10 pp y-o-y to c35%, helped by the March 2024 economic reforms and the Ras El Hekma investment deal, allowing it to source its USD needs from banks at the official rate, c4% y-o-y lower SMP price, and higher exports margin from concentrates. JUFO’s concentrates revenue (c15% of 1H24 total revenue, up from c9% in 1H23) benefited from the global supply shortage of oranges (expected to last for three years) due to climate change and the March 2024 EGP devaluation, increasing its competitiveness and export margins.

“We forecast JUFO’s revenues to grow at a 2025–29e CAGR of c19% on higher volumes and prices: We expect a relative moderation in inflation in 2025 to a yearly average of c23% from c30% in 2024 to help consumer demand recover. We project JUFO’s volumes to grow at a CAGR of c5% and average selling prices at c13% over 2025–29e. In 2024e, we expect revenues to grow by c48% y-o-y to EGP23.9bn, largely due to a threefold y-o-y increase in concentrate exports to EGP3.24bn (c14% of total sales from c6% in 2023), partially hedging JUFO’s FX needs. In 2025e, we expect revenues to rise by c26% y-o-y to EGP30.0bn, mainly driven by a c25% y-o-y increase in blended selling prices to EGP61.7/liter and a c31% y-o-y increase in concentrates revenue to EGP4.70bn. Starting 2026e, we expect interest rate cuts, declining inflation, and salary adjustments to accelerate consumer demand recovery and drive revenue growth, leading us to estimate a 2025-29e revenue CAGR of c19%.” Pakinan added.
“We estimate JUFO’s EBITDA and EPS to grow at a 2025–29e CAGR of c19% and c24%, respectively, on healthy revenue growth and higher export rebates despite higher net interest expense: In the absence of any external shocks, we generally expect the company to pass additional costs onto consumers to preserve its margins. We expect JUFO’s GPM to expand to 32.5% in 2024e from 26.2% in 2023, despite higher transportation costs in 4Q24 due to the c17% increase in diesel price on 18 October. However, in 2025e, we project a slight c1 pp y-o-y decline to 31.4% and to increase slightly to c32% in 2026e. In 2024e, we forecast EBIT margin to expand by c7 pp y-o-y to 19.8% on the GPM expansion and c4x y-o-y higher export rebates to EGP392m, and project EBIT margin to average c19% over our 2025–29e forecast period, with export rebates growing at a 2025–29e CAGR of c17%. Accordingly, we estimate JUFO’s EBITDA to grow at a 2025–29e CAGR of c19%. Despite expected higher net interest expenses in 2024e and 2025e due to JUFO’s higher EGP-denominated debt – reporting a net debt of EGP2.14bn as of June 2024, up from EGP1.21bn as of 30 March 2024 and EGP150m as of December 2023 – we expect net profit margin (NPM) to expand by c5 pp y-o-y to 11.3% in 2024e, and 12.2% in 2025e. However, starting 2026e, we forecast a gradual increase in NPM to 14.0% by 2029e, driven by easing interest rates. We estimate JUFO’s EPS to grow at a 2025–29e CAGR of c24%.” Consumers Analyst concluded.

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HC expects the CBE to maintain the interest rates, waiting for more inflation deceleration

Posted on September 2, 2024September 2, 2024 by Marwa Nakhla

In light of Egypt’s macro economy developments and the global conditions, HC Securities & Investment expects the CBE to keep the interest rates unchanged in its upcoming meeting scheduled September 5^th, 2024

Financials analyst and economist at HC, Heba Monir commented: “We expect urban inflation to decelerate to 24.9% y-o-y for August on a favorable base effect. However, we anticipate a 1.0% m-o-m increase on the recent energy and transportation cost hikes at the beginning of August. Egypt’s PMI index surpassed the 49.0’s level over the last three consecutive readings, coinciding with the deceleration in inflation. Egypt’s external position showed a stable outlook, as follows: (1) Egypt received USD820m from the IMF, representing the third tranche of its USD8.0bn EFF, (2) the banking sector’s net foreign assets (NFA) narrowed by USD1.27bn m-o-m to USD13.0bn in June from USD14.3bn in May, reversing a net foreign liability (NFL) position of USD27.0bn a year earlier. We attribute the m-o-m lower NFA to probably normalized FX inflows, (3) net international reserves (NIR) increased c33% y-o-y and 0.2% m-o-m to USD46.5bn in July, and deposits not included in the official reserves rose 2.11x y-o-y and 3.0% m-o-m to USD9.86bn in the same month, (4) Egypt’s REER index decreased to 91.9 in July from 126 in January, and the NEER index also retreated to 16.6 from 25.5 in January, according to Bruegel data, (5) Egypt’s 1-year CDS recorded 403 currently, down from its figure of 857 bps on 1 January. On the global front, the US sovereign 12M rate also retreated to 4.40% from its peak at 5.23% on 30 April. Thus, our interest rate model estimated the required interest rate by investors on the 12-month T-bills at 33.1%, which implies a real positive interest rate of 7.1% (after deducting a 15% tax rate for European and US investors and based on our 12M average inflation rate forecast of 21.1%), higher than the estimated positive interest rate of 1.2% over the latest 12M T-bill rate of 26.2%. All these factors pave the way for interest cuts; however, we expect the MPC to maintain rates unchanged at the 5 September meeting, waiting for more inflation deceleration, given recent electricity bill hikes scheduled to take effect in September.”

It is worth mentioning that, in its 18 July 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 decelerated to 25.7% in July from 27.5% in June, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices inched up 0.4% m-o-m, compared to an increase of 1.6% m-o-m in the previous month. On the global front, the US Federal Reserve maintained the target range for the federal funds rate at 5.25–5.50% after it hiked rates by 100 bps in 2023 and 425 bps in 2022, with a total of 525 bps since it started its tightening policy, while 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 to 4.25%, 4.50% and 3.75%, respectively after nine months of holding rates steady on an improved inflation outlook. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 5 September MPC meeting

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HC expects the CBE to maintain the overnight deposit and lending rates

Posted on May 23, 2024 by Marwa Nakhla

Based on Egypt’s macro economy developments, HC Securities & Investment expects the CBE is to most likely keep the policy rates unchanged in its upcoming meeting scheduled May 23rd, 2024

Financials analyst and economist at HC, Heba Monir commented: “ We expect the MPC to maintain the overnight deposit and lending rates at its upcoming meeting given (1) the y-o-y deceleration in headline inflation for two consecutive months, despite m-o-m increases, (2) improved FX liquidity post the Ras El Hekma investment deal after receiving around USD25bn from the UAE and the IMF, which helped increasing net international reserves (NIR) by c19% y-o-y and c1.7% m-o-m to USD41.1bn in April and narrowing the net foreign liabilities (NFL) of the banking sector significantly by c81% m-o-m and c83% y-o-y to USD4.18bn in March, (3) the improvement in Egypt’s one-year CDS to 287 bps from 857 bps on 1 January, and (4) the recent improvement in Egypt’s credit outlook by Moody’s to Positive from Negative and to Positive from Stable by Fitch and S&P.

Egypt’s latest 12M T-bill rates retreated to 25.98%, implying an estimated negative real yield of c6.8%, down from its peak of 32.30% in mid-March. The decline in T-bills rates reflects a rebound in foreign holdings in treasuries by around USD11-12bn until 8 April (according to banking sector sources), following the CBE’s decision to allow market supply and demand forces to determine the FX rate, the Ras El Hekma investment deal, and resumed IMF program.

It is worth mentioning that, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) hiked the benchmark overnight deposit and lending rates by 600 bps on 6 March in a special meeting to 27.25% and 28.25%, respectively, 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 decelerated to 32.5% in April from 33.3% y-o-y in March, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.1% m-o-m in April, compared to an increase of 1.0% m-o-m in the previous month. On the global front, the US Federal Reserve maintained interest rates at its current range of 5.25-5.50% after it hiked rates by 100 bps in 2023 and 425 bps in 2022, with a total of 525 bps since it started its tightening policy. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 23 May MPC meeting.”

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HC believes that a 100bps hike is possible

Posted on May 17, 2023 by Marwa Nakhla

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled May 18^th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates 100bps.

Financials analyst and economist at HC, Heba Monir commented: “ Our comment: We see the recent deceleration in inflation rate to be short-lived and expect inflation to inch up 1% m-o-m in May following the recent increase in diesel prices and changes in the ration cards system, averaging at 30.2% for 2H23, on our numbers. Also, the banking sector’s net foreign liabilities (NFL), including the CBE, widened to USD24.5bn in March from USD23.0bn in February, according to CBE data. Excluding the CBE, the banking sector’s NFL widened significantly to USD15.6bn in March from USD13.8bn in February. As a result of the pressure on the local currency, Egypt’s 1-year CDS reached a record high. On a more positive note, the current account registered a surplus of USD1.41bn in 2Q22/23 for the first time in many years compared to a deficit of USD3.80bn a year earlier, mainly due to significant import control. On the other side, the capital and financial account recorded a deficit of USD1.63bn in 2Q22/23, reversing a surplus of USD5.38bn a year earlier, mainly due to a USD3.96bn deficit in the assets of the banking and other sectors compared to a surplus of USD2.38bn a year earlier and net foreign portfolio outflows reached USD855bn in 2Q22/23 bringing these outflows to USD3.01bn in 1H22/23. The external debt increased by c5% q-o-q and c12% y-o-y to USD163bn in December 2022. A 100 bps policy rate hike in the coming meeting could increase the required 12M T-bills rate to 27.5%, based on our calculations, due to a significant hike in Egypt’s 1-Year CDS to 2,510 bps from only 618 at the beginning of the year and a widening in the inflation differential between Egypt and US to 29.1% in 2Q23 from 24.2% in 1Q23, which would translate into a real interest rate of 6.57% based on our calculation (accounting for a 15% tax rate for US and European investors and 16.5% inflation in May 2024) compared to 3.63% currently and 0.50% in the US. We believe this could attract carry trade again, especially with the Federal Reserve hinting that are no more hikes expected soon. So, considering our inflation expectations until year-end, the need to attract carry trade, the banking sector’s widening NFL, and the delay in the partial asset sale program, we expect the MPC to raise the policy rates by 100 bps. The downside of a rate hike is higher debt servicing costs; however, we see bridging the FX shortage through carry trade as a more urgent priority.”

It is worth mentioning that, in its 30 March meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to raise the benchmark overnight deposit and lending rates by 200 bps to 18.25% and 19.25%, respectively, with a total of 200 bps y-t-d and 800 bps in 2022. Egypt’s annual headline inflation decelerated to 30.6% y-o-y in April from 32.7% y-o-y in the previous month, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.7% m-o-m in April compared to an increase of 2.7% m-o-m in the previous month. On the global front, the US Federal Reserve raised interest rates by 25 bps on 4 May to a range of 5.00-5.25% with a total of 75 bps y-t-d and 425 bps in 2022. Based on Egypt’s current economic situation, we provide below our expectations for the likely outcome of the 18 May MPC meeting.

HC believes the MPC is to increase the policy rates

Posted on March 27, 2023March 27, 2023 by Marwa Nakhla

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled March 30^th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates.

Financials analyst and economist at HC, Heba Monir commented: “ We expect the MPC to continue tightening policy rates by around 200 bps in its 30 March meeting to tame increasing inflation rates, which we expect to continue rising, peaking at 35.9% by July, on our numbers, before it decelerates to 30.3% by December. We anticipate that March and the coming months’ inflation figures will reflect; (1) the early March c7-11% increase in octane gasoline prices and the c20% increase in heavy fuel oil (mazut) prices for all industries except food and electricity generating sectors; (2) the expected increase in household electricity effective 1 July; (3) the recent liberalization of the prices of essential food commodities like rice; (4) the shortage in local poultry supply due to problems related with animal feed prices and availability, affected by the Russia-Ukraine war, and (5) the continuing EGP devaluation which reached c20% y-t-d. As a result of the USD shortage, Egypt’s banking sector net foreign liabilities (NFL), including the Central Bank of Egypt (CBE), widened to USD21.6bn in January 2023 from USD20.0bn in December 2022. Excluding the CBE, the banking sector’s NFL widened to USD13.0bn from USD11.7bn in December 2022. In light of the inflationary pressures, the USD shortage, and Egypt’s need to keep the carry trade attractive, we calculate a required 12M T-bills rate of 25.18%, which considers soaring Egypt’s 1-Year CDS to 1,419 from 670 at the beginning of February. Foreign holdings in Egyptian T-bills increased by USD2.4bn from December 2022 to USD10.4bn by the end of January 2023. The latest 12M T-bills auction recorded an average yield of 19.19% (accounting for a 15% tax rate for US and European investors), which offers a real yield of negative 2.31%, given our inflation expectation of 21.5% in March 2024, solidifying our view of a needed increase in policy rates. We estimate the real yield to turn to a positive1.33% based on our calculated required after-tax 12M T-bill rate and expected inflation of 20.1% for April 2024.

On a more positive note, deposits not included in the official reserves increased for the third consecutive month, increasing in February by c19% m-o-m to USD2.61bn, yet it still remains below its level of USD9.18bn a year earlier, and net international reserves (NIR) inched up for the sixth consecutive month by 0.4% m-o-m to USD34.3bn in February, while dropping 16.2% y-o-y.”

It is worth mentioning that, in its 2 February 2023 meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to keep the benchmark overnight deposit and lending rates unchanged at 16.25% and 17.25%, respectively after it hiked policy rates by 800 bps in 2022 and by 500 bps in 4Q22 alone. Egypt’s annual headline inflation accelerated to 31.9% y-o-y in February from 25.8% y-o-y in the previous month, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 6.5% m-o-m in February 2023 compared to an increase of 4.7% m-o-m in the previous month, mainly due to increasing food and beverage prices by 14.4% m-o-m compared to an increase of 10.1% m-o-m in January. On the global front, the US Federal Reserve raised interest rates on Wednesday by 25 bps, bringing its total rate hikes y-t-d to 50 bps after it increased interest rates by 425 bps in 2022.

Egypt real estate – Subpar economic conditions warrant selectivity

Posted on February 5, 2023February 12, 2023 by Marwa Nakhla

HC Brokerage issued their update about Egypt’s real estate sector shedding the light on six main players’ performance following the most recent market dynamics.

While sector investment demand benefited from inflation and EGP devaluation fears, currently, it is hurt by lower affordability, cost overruns, and challenging financing
We expect further market consolidation following sector conditions and the EGP devaluation; revaluation of assets is currently underway for the acquisition targets

Mariam Elsaadany, real estate analyst at HC Brokerage commented that: “ Soaring inflation is pressuring affordability and leading to cost overruns; in our view: A high inflation environment, causing negative real interest rates, has historically served the Egyptian real estate sector well, as investors usually view it as a safe haven. However, the current macro environment is challenging to the industry, in our view. Cost-inflationary pressures, caused by soaring inflation rates, which averaged 13.8% in 2022, led to cost overruns and pushed developers to resort to receivables securitization more than bank debt, which pressured their operating margins. We expect this to continue into 2023e as we expect inflation to average 21.5%. The Central Bank of Egypt (CBE) raised the key policy rates by 800 bps in 2022, and the EGP devalued by c37% in 2022 and by c18% y-t-d. To fend off dollarization and keep inflation in check, Egyptian public banks issued high-yielding certificates of deposits (CDs), offering an interest rate of as much as 25.0%, and private banks followed suit. In our view, the high-yielding CDs compete with investment in the real estate sector, adversely impacting its pre-sales which only grew by c8% in 9M22 in terms of value, while volume dropped c5% y-o-y for the six developers we track, as opposed to growing by c59% in 2021, which was volume and value-driven. Developers could not extend payment plans further, as previous years’ extended payment plans had already stretched their cash flows, raising concerns about affordability. In 2023e, we expect pre-sales growth to be price-driven.”

Elsaadany added: “Tourism recovery and EGP devaluation lead us to prefer developers with hospitality exposure; while we keep an eye on M&A targets: Given the currency outlook and a recovering tourism sector, as evidenced by higher occupancy rates, we like companies with significant hospitality operations, namely Orascom Development Egypt (ORHD EY) and Talaat Moustafa Group Holding (TMGH EY). Also, in light of a high-interest rate environment, we like developers who have been active in deleveraging their balance sheets and building on their ready-to-move inventory, putting themselves at a cost advantage, like Palm Hills Developments (PHDC EY). The three stocks also enjoy solid fundamentals and decent market liquidity. We believe three of the six companies under our coverage are subject to M&A speculation and/or currently the subject of a potential deal with ORHD’s sale of its subsidiary, Orascom Real Estate (ORE) to SODIC, under study. Also, in our view, MNHD and HELI are the two other developers we believe are most likely to be the subject of a potential acquisition due to their attractive land bank. As a result, the stock prices of ORHD, MNHD, and HELI rallied c20%, c43%, and c18%, respectively, during 2022, implying a value of EGP615/sqm of land for HELI and EGP1,227/sqm for MNHD at the current market prices. Given the outlook on the EGP, we maintain a favorable view on acquisition targets during 2023e despite them offering lower potential returns based on our valuations. The valuations for the deals/potential deals seen by the market ranged from EGP878/sqm—1,192/sqm of undeveloped land. The most recent offer by SODIC to acquire Orascom Real Estate (ORE), a subsidiary of Orascom Development Egypt (ORHD EY), implied a price of EGP878/sqm, or USD45/sqm. In our view, future potential deals should see a significant increase on an EGP basis.”

“The sector challenges are reflected in stock prices which are currently oversold with an average 2023e P/NAV and P/E ratios of 0.34x and 6.08x (excluding HELI), respectively, suggesting that the overselling is excessive, in our view. PHDC and TMGH stocks have not rallied as much as other real estate names despite both companies delivering good results, PHDC initiating a share buyback program, and both stocks paying dividends. PHDC is trading at a 2023e P/NAV of 0.29x, and TMGH is trading at 0.32x, lower than the sector’s average. PHDC offers the highest potential return of c83% and TMGH c57%, while the market assigns a negative value to TMGH’s land bank. Therefore, we maintain our Overweight recommendations for the two stocks.

In our view, an economic pickup, monetary easing, and the development of the mortgage market for the upper-middle segment would be the sector’s key triggers.”, Mariam Elsaadany concluded.

In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment expects the CBE to cut interest rates by 150 bps at its upcoming April 17, 2025 meeting.

In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment expects the CBE to keep the interest rates unchanged in the MPC upcoming meeting scheduled February 18, 2025

In light of Egypt’s macro economy developments and the geopolitical tensions, HC Securities & Investment expects the CBE to leave the interest rates unchanged in its upcoming meeting scheduled November 21, 2024

In a recent report, HC Brokerage resumed their coverage of Juhayna Food Industries forecasting JUFO to preserve its market share and margins.

In light of Egypt’s macro economy developments and the global conditions, HC Securities & Investment expects the CBE to keep the interest rates unchanged in its upcoming meeting scheduled September 5th, 2024

Based on Egypt’s macro economy developments, HC Securities & Investment expects the CBE is to most likely keep the policy rates unchanged in its upcoming meeting scheduled May 23rd, 2024

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled May 18th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates 100bps.

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled March 30th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates.

While sector investment demand benefited from inflation and EGP devaluation fears, currently, it is hurt by lower affordability, cost overruns, and challenging financing

We expect further market consolidation following sector conditions and the EGP devaluation; revaluation of assets is currently underway for the acquisition targets

In light of Egypt’s macro economy developments and the global conditions, HC Securities & Investment expects the CBE to keep the interest rates unchanged in its upcoming meeting scheduled September 5^th, 2024

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled May 18^th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates 100bps.

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled March 30^th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates.