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In light of Egypt’s macro economy developments and the geopolitical conditions, the Research Dept. at HC Securities & Investment expects the CBE to cut the policy rates by 150-200 bps at its upcoming February 12, 2026 meeting.
Financials analyst and economist at HC, Heba Monir commented: “ Egypt’s external position is showing resilience with: (1) net international reserves (NIR) increasing c2% m-o-m to a record USD52.6bn in January, and deposits not included in the official reserves also hiking significantly by c33% m-o-m (USD3.40bn) in the same month to USD13.7bn; (2) Egyptian banks’ net foreign assets (NFA) position widening by c8% m-o-m to USD25.5bn in December; (3) Egypt’s USD sources showing stability and improving with worker remittances increasing c13% y-t-d while decreasing c3% m-o-m in November to USD3.6bn, which still reflecting confidence in the FX liquidity in Egypt, Suez Canal revenues increasing by c18% y-o-y to USD365m in January 2026 and the tourism sector reporting record numbers in 2025; (3) Egypt’s current account deficit narrowing by c45% y-o-y to USD3.24bn in 1Q25/26; and (4) Egypt’s 1-year CDS declining remarkably to 176 bps from 336 bps a year earlier. All these factors had helped Egypt’s exchange rate to appreciate by c8% y-o-y against the USD. Domestically, the PMI index fell to 49.8 in January from 50.2 in December, and is still considered positive even though it fell below the 50 mark, as the PMI reading reflected that cost pressures remained weak and even softened in January, with total input costs rising at the slowest pace in ten months, which enabled firms to cut their own charges for the first time in five-and-a-half years. We expect consumer prices to cool to an average of 9.50-10% throughout 2026 and estimate January inflation to decelerate to 11.4% y-o-y, driven by a favorable base-year effect, in line with the CBE’s target range of 7% (+/- 2%) by 4Q26. As for the attractiveness of Egypt’s carry trade, the latest 12M T-bills auction of 23.5% implies a positive real interest rate of 8.99% 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. As for geopolitical risks, even though they remain concerning, they have relatively eased after the U.S. and Iran agreed to resume talks, the U.S. expressed a desire to end the war in Ukraine by June 2026, and the Gaza ceasefire deal went into effect on 10 October 2025, although it was breached several times. Accordingly, given Egypt’s improved external position, the EGP’s appreciation, the high real interest rate, the slowdown in input costs, the relative easing in geopoliticial risks, and the expected decline in inflation rates, we see that the MPC has a window of opportunity to cut the policy rates by by 150-200 bps at its 12 February meeting, which would stimulate private sector and economic growth and lower the government’s local debt servicing cost, in our view.”
It is worth mentioning that, at its 25 December meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) cut the benchmark overnight deposit and lending rates by 100 bps to 20.0% and 21.0%, respectively, reversing a total of 725 bps of a total 1,900 bps rate hikes since the CBE started its tightening policy in 2022. Egypt’s annual headline inflation was stable at 12.3% y-o-y in December, similar to November, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices inched up 0.2% m-o-m in December, compared to an 0.3% m-o-m increase in November. On the global front, on 28 January, the U.S. Federal Reserve maintained the target range for the federal funds rate at 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 5 February 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. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 12 February MPC meeting.
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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.
