Tag: Macro Economy in Egypt

• 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.

• In its latest report about their expectations on the likely outcome of the MPC meeting scheduled on 24 September and based on Egypt’s current situation and the inflation levels, HC expects the CBE to keep interest rates unchanged. 

Head of macro and financials at HC, Monette Doss commented: “Inflation levels remain subdued coming in well below the CBE target of 9% (+/- 3%) for 4Q20 and also less than our earlier expectation of 4.2% y-o-y for August, on declining food prices in addition to low consumer spending on other non-food items, in our view. We now expect inflation to average c5% in 4Q20 down from our earlier estimate of c6%. Real interest rates in Egypt reached a high of 4.7% and 7.0% on short-term deposits and loans, respectively, significantly above their 12-year average of -3.3% and 0.8%. We, however, believe that the high real interest rate environment is justified by relatively low liquidity in the banking sector as well as the net foreign liability position held by banks currently. The CBE open market operations, as an indicator for interbank liquidity, declined to c10% of total local currency deposits in August well below its 12-year average (excluding 2011-2013) of c21%. On another front, the banking sector has been holding a net foreign liability position since the massive foreign portfolios outflows that took place in March, however, partially narrowing to USD1.8bn in July. We accordingly expect interest rates, including the 1-year 15% CDs offered by public banks, to remain at elevated levels in order to preserve the banking sector liquidity. A larger scale rebound of foreign portfolio inflows would enhance interbank liquidity and result in cooling off T-bill yields from current levels, in our view. That said, we expect the MPC to keep interest rates unchanged in its upcoming meeting.”

It is worth mentioning that, in its last meeting on 13 August, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to keep rates unchanged for the fourth time after undertaking a 300bps rate cut on 16 March in an unscheduled meeting.  Egypt’s annual headline inflation decelerated to 3.4% in August from 4.2% in the previous month, with monthly inflation declining 0.2% m-o-m compared to an increase of 0.4% m-o-m in July, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).