interest rates in Egypt Archives

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.

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: 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 expects the CBE to maintain the interest rates, Egypt’s credit outlook improvement is one of the reasons

Posted on July 18, 2024July 21, 2024 by Marwa Nakhla

In light of Egypt’s macro economy developments and the global conditions, HC Securities & Investment expects the CBE to maintain the interest rates in its upcoming meeting scheduled July 18^th, 2024, Egypt’s credit outlook improvement is one of the reasons

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 despite (1) the y-o-y deceleration in headline inflation for four consecutive months, despite m-o-m increases, on favorable base effect, (2) improved FX liquidity post the Ras El Hekma investment deal, which helped increasing net international reserves (NIR) by c33% y-o-y and c0.6% m-o-m to USD46.4bn in June and reversing the net foreign liabilities (NFL) position of the banking sector of USD29.0bn in January into a net foreign assets position (NFA) of USD14.3bn in May, (3) the improvement in Egypt’s one-year CDS to 303 bps currently 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. However, our interest rate model estimated the required interest rate by investors on the 12-month T-bills at 36.1%, corresponding with the maximum yields requested by banks and reflected in the high bid-to-cover ratios currently witnessed, which implies a real positive interest rate of 7.9% versus a current minor negative real interest rate of 0.6% (after deducting a 15% tax rate for European and US investors and based on our 12M average inflation rate forecast of 22.8%) over the latest 12M T-bill rate. Since the 6 March EGP floatation, the 12M T-bill rate rebounded to 26.1% currently from its lowest level of 25.7% in early April, yet it remains lower than its peak at 32.3% in early March. Therefore, given the current negative real interest rate on treasuries and the possibility of higher inflation following the imminent revision of household electricity and fuel prices in 3Q24, we anticipate the MPC will keep interest rates unchanged.”

It is worth mentioning that, in its 23 May 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 27.5% in June from 28.1% y-o-y in May, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.6% m-o-m, compared to a decrease of 0.7% 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) ECB lowered the key ECB interest rates by 25 bps 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 18 July MPC meeting.

About HC Securities & Investment

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.”

About HC Securities & Investment

HC expects the MPC to maintain the policy rates on its first meeting in 2024

Posted on January 27, 2024January 30, 2024 by Marwa Nakhla

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled February 1^st. Based on Egypt’s current situation, they expect the CBE to keep the policy rates unchanged.

Financials analyst and economist at HC, Heba Monir commented: “We expect the MPC to maintain the overnight deposit and lending rates on its 1 February meeting in the lack of an FX rate movement; however, if an EGP devaluation takes place, we don’t rule out a policy rate hike. We anticipate an adjustment in the FX rate after concluding the IMF’s delayed first and second reviews and reaching an agreement with the IMF on doubling, if not more, the value of the USD3.00bn Extended Fund Facility (EFF). Regarding inflation, we forecast January’s annual headline inflation to increase by 6.7% m-o-m and 36.3% y-o-y to factor in higher metro ticket prices, telecom prices, household electricity prices, and also due to increased money supply resulting from the maturity of high-yielding certificates of deposits (CDs) in January, which the government tried to absorb by issuing one-year CDs by Banque Misr and the National Bank of Egypt (NBE) at an interest rate of 23.5% paid monthly and 27.0% paid annually. Also, the Commercial International Bank Egypt – CIB (COMI EY) issued competitive high-yielding three-year CDs at interest rates ranging from 20-22%. Pressures on the currency are increasing, with Egypt’s 1-year CDS increasing to 960 bps from 886 bps on 21 December, gold price skyrocketing by c17% y-t-d, and market participants pushing for higher yields on treasuries. The 12M T-bills rate increased to a 52-week high of 27.7% last Thursday from 27.4% on 21 December, implying a current negative real interest rate of 9.0%. Despite the negative real interest rate on treasuries, we don’t expect attracting carry trade to be at the forefront of the MPC priorities for the time being due to the FX uncertainty, the rating downgrades by Moody’s, S&P, and Fitch, and Egypt’s removal from JP Morgan’s Global Bond Index-Emerging Markets (GBI-EM) series, effective 31 January due to significant FX conversion concerns reported by investors, making Egyptian treasuries less attractive to foreign investors for the time being. On a more positive note, the banking sector’s net foreign liabilities (NFL) narrowed by USD170m m-o-m in November to USD27.0bn and, excluding the CBE, by USD47.2m m-o-m to USD15.8bn, net international reserves (NIR) increased by around USD47m m-o-m to USD35.219bn in December from USD35.173bn a month earlier, and deposits not included in official reserves also increased c3.2% m-o-m in December to USD6.38bn, according to CBE data.”

It is worth mentioning that, in December 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 maintaining it for three consecutive meetings and increasing it by 300 bps in 2023 and 800 bps in 2022. Egypt’s annual headline inflation decelerated to 33.7% in December from 34.6% y-o-y in November, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.4% m-o-m in December compared to a 1.3% m-o-m increase in the previous month. On the global front, the US Federal Reserve raised interest rates in July 2023 by 25 bps to a range of 5.25-5.50%, a total of 100 bps in 2023 and 425 bps in 2022, with most expectations likely to maintain rates in its meeting in 30-31 January.

HC believes the MPC is to keep the policy rates unchanged

Posted on September 14, 2023September 18, 2023 by Marwa Nakhla

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

Financials analyst and economist at HC, Heba Monir commented: “ We anticipate Egypt’s inflation to continue rising by 1.8% m-o-m and accelerate to 37.8% y-o-y in September, reflecting supply shortages of basic commodities and products mainly caused by the curbing of importation and lack of USD availability and the seasonality effect of the partial start of schools and universities’ academic year. Egypt’s overall balance of payment (BoP) recorded a deficit of USD317m in 3Q22/23, despite recording surpluses during the previous two quarters, mainly due to a c17% q-o-q drop in exports. Moreover, Egypt’s 1-year CDS soared c60% y-t-d and c31% m-o-m to 1,217 bps in mid-September 2023. On a more positive note, net international reserves (NIR) increased by 4.39% y-o-y and 0.14% m-o-m to USD34.9bn in August, and deposits not included in the official reserves increased by c1.6% m-o-m and 5.35x y-o-y to USD4.74bn in August. Egypt’s banking sector’s net foreign liabilities (NFL) narrowed by USD822m m-o-m to USD26.3bn in July, according to CBE data. Excluding the CBE, the banking sector’s NFL narrowed by USD965m m-o-m to USD16.1bn, due to an increase in banks’ foreign assets (excluding the CBE) by c8% m-o-m versus no change in banks’ foreign liabilities. Based on Egypt’s economic situation, we believe that the MPC is likely to maintain interest rates at its 21 September meeting to fully absorb the effect of the last 100 bps increase, especially that the inflation is supply-driven and not demand-driven. Additionally, the latest 12-month T-bills recorded an average yield of 25.541%, up 663 bps y-t-d and 83 bps m-o-m, partially reflecting the 3 August 100 bps rate hike, the spike in Egypt’s CDS and to maintain the attractiveness of Egypt’s carry trade, which also suggests that the MPC may hold interest rates at its upcoming meeting.”

It is worth mentioning that, in its 3 August meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to raise the benchmark overnight deposit and lending rates by 100 bps to 19.25% and 20.25%, respectively, with 300 bps total rate hike y-t-d and 800 bps in 2022. Egypt’s annual headline inflation accelerated for the third consecutive month to a record of 37.4% in August from its previous record of 36.4% y-o-y in July, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.59% m-o-m in August compared to 1.86%m-o-m 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 an expectation to maintain rates in its meeting next week, according to Reuters poll.

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

Posted on September 16, 2021 by Marwa Nakhla

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled September 16^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: “Egypt’s inflation remains closer to the lower end of the CBE target range of 7% (+/-2%) for 4Q22, and we expect it to average 5.6% in 4Q21. We believe that the Federal Reserve’s recent announcement of unlikely interest rate hikes in the near future partly relieved the pressure on Egypt’s treasury yields by renewing the interest in emerging markets carry trade. Accordingly, Egyptian treasury bill yields declined by an average of 40 bps since mid-August, reflecting higher foreign portfolio inflows during August. Foreign holding of Egyptian treasuries increased to USD33.0bn in August from USD29.0bn in May, according to S&P Global Ratings. We also believe that a rebound in foreign currency receipts from tourism following the resumption of Russian flights to Egypt’s Red Sea resorts released some interest rate pressure on the EGP. Going forward, we believe that the interest rate action of other emerging markets will determine the pace of future declines in Egypt’s treasury yields. Currently, Turkey offers c19% on its 1-year treasuries (hence a real yield of 5.45% given zero taxes and Bloomberg 2022 inflation estimate of 13.4%) compared to Egypt’s real yield of 3.0% (given our 2022e inflation forecast of c8% and 15% taxes for European and US investors). Also. according to CBE data, the corporate borrowing rate is currently at around 9.4%, while the risk-free after-tax rate is around 10.4%. Therefore, we believe that any interest rate cuts at the moment could lead to a wider gap between the corporate and the risk-free rates, with the corporate rate being on the lower end. We accordingly expect the MPC to keep rates unchanged in its upcoming meeting.”

It is worth mentioning that, in its last meeting on 5 August, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to keep rates unchanged for the sixth consecutive time. Egypt’s annual headline inflation came in at 5.7% in August, with monthly inflation increasing 0.1% m-o-m compared to an increase of 0.9% m-o-m in July, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).

-Ends-

About HC Securities:

HC Securities & Investment (HC) 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, online trading and private equity 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 USD6.2bn. HC Asset Management, winner of the 2018 MENA Fund Manager Awards, now manages 9 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP6.8bn. 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: Possible higher inflows into Egyptian sovereigns following the inclusion in the FTSE and the JP Morgan GBI-EM

Posted on June 13, 2021 by Marwa Nakhla

HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled June 17^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: “The May inflation figures came in slightly better than our estimates of 5.0% y-o-y and 0.8% m-o-m. Over the rest of 2021, we expect monthly inflation to average 0.8% m-o-m and 6.8% y-o-y accounting for rising international commodity prices and a possible pick-up in tourism and consumer spending following the successful rollout of the COVID-19 vaccine. We, therefore, expect 2021 inflation to remain within the CBE’s target range of 7% (+/-2%) for 4Q22. Given sluggish tourism receipts, currently, Egypt relies on foreign portfolio inflows into sovereign debt as a main source for foreign currency which poses interest rate pressures on sovereigns. This is evident in T-bill rates declining by only 129bps since January 2020 despite the CBE undertaking a 400 bps rate cut during that period which resulted in a decoupling between corridor rates and sovereign yields. Currently, banks earn an after-tax rate of 10.6% on 12M treasuries and around 10.8% on lending to the private sector (according to the CBE’s subsidized loan initiatives to different sectors at 8% while compensating participating banks for the difference between mid-corridor rate + 2%). We believe that at this point a rate cut could result in further deviation of sovereign and corridor rates with the risk-free rate being on the lower side. We note that over the last 3 months foreign portfolio inflows into Egyptian treasuries have been largely stagnant with announcements for foreign holdings in May being at USD28-29bn, the same figure that was announced for February. We also note that net foreign assets for the banking sector (excluding the CBE) came in at USD3.52bn which we believe is a vulnerable level given that Egyptian banks are the main cushion against a currency sell-off. We accordingly, expect the MPC to maintain rates unchanged in its upcoming meeting. We believe that a 100 bps rate cut is possible in 2H21 following the resumption in tourism and a possible pick-up in international trade. Also, possible higher inflows into Egyptian sovereigns following the inclusion in the FTSE Frontier Emerging Markets Government Bond Index Series and the JP Morgan GBI-EM Global Diversified Index could allow room for the MPC to undertake a rate cut. That said, we believe that Egyptian treasuries provide attractive real yield of 4.0% on our calculations (13.3% on 12M T-bills, 15% tax rate for European and American investors and our inflation estimate of 7.3%) compared to a real yield of 3.1% for Turkey (18.7% on 1-year treasuries, zero tax rate and Bloomberg inflation estimate of 15.6%).”

It is worth mentioning that, in its last meeting on 28 April, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to keep rates unchanged for the fourth consecutive time after undertaking cuts of 50 bps twice in its October and November 2020 meetings. Egypt’s annual headline inflation accelerated to 4.8% in May, with monthly inflation increasing 0.7% m-o-m compared to an increase of 0.9% in April, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).

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).

Tag: interest rates in Egypt

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