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In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment expects the CBE to cut the policy rates by 150 bps at its upcoming December 25, 2025 meeting.
Financials analyst and economist at HC, Heba Monir commented: “Egypt’s external position is showing resilience with: (1) net international reserves (NIR) increasing 0.29% m-o-m and c7% y-t-d to a record USD50.2bn in November; (2) Egyptian banks’ net foreign assets (NFA) position widening by c9% m-o-m and 4.34x y-t-d to USD22.7bn in October; (3) Egypt’s worker remittances increasing c26% y-o-y and c3% m-o-m in October to USD3.7bn, reflecting confidence in the FX liquidity in Egypt; (4) Egypt’s 1-year CDS declining remarkably to 138 bps from 379 bps at the beginning of the year; (5) and Suez Canal revenues increasing by c17% y-o-y to USD1.97bn in 5M25/26. All these factors had helped Egypt’s exchange rate to appreciate by c7% y-t-d against the USD. Domestically, the PMI index improved to 51.1 in November from 49.2 in October, the highest level since October 2020, on improved demand and reduced pressure on business costs. Consumer prices are cooling off, with an accumulated c11% m-o-m increase in 11M25, compared to a c22% accumulated m-o-m increase in 11M24; and we still see inflation following a downward trajectory thereafter. As for the attractiveness of Egypt’s carry trade, the latest 12M T-bills auction of 25.3% implies a positive real interest rate of 10.5% using our 12M inflation estimate of c11% (after deducting a 15% tax rate for European and U.S. investors), suggesting that Egypt’s Carry Trade remains attractive. Also, the recent drop in Egypt’s CDS would lower the required yield on treasuries by foreign investors, which is not yet reflected in the recent treasury auctions. Accordingly, given Egypt’s improved external position, the EGP’s appreciation, the high real interest rate, and the expected decline in inflation rates, we expect the MPC to cut policy rates by 150 bps at its upcoming 25 December meeting to stimulate private-sector growth.”
It is worth mentioning that, at its 20 November meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates at 21.0% and 22.0%, respectively, after it reversed a total of 625 bps of a total 1,900 bps rate hikes since the CBE started its tightening policy in 2022. Egypt’s annual headline inflation decelerated to 12.3% in November from 12.5% in October, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices inched up 0.3% m-o-m in November, compared to 1.8% m-o-m increase in October. On the global front, on 10 December, the U.S. Federal Reserve lowered the target range for the federal funds rate by 0.25% to 3.50%-3.75% with total cuts of 175 bps after it hiked rates by 525 bps since it started tightening policy in 2022, and on 18 December the European Central Bank (ECB) maintained the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility at 2.00%, 2.15% and 2.40%, respectively, bringing total cuts to 200 bps, since it started cutting rates in June 2024 after it hiked rates by 450 bps since it started its tightening policy in 2022.
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 EGP4bn. 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.