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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 200 bps at its upcoming August 28, 2025 meeting.
Financials analyst and economist at HC, Heba Monir commented: “We see Egypt’s external position stabilizing as per the following indicators: (1) the c5% EGP appreciation y-t-d to EGP48.6/USD (2) Egypt’s 1-year CDS retreating to 267 bps from 379 bps at the beginning of the year, (3) Egypt’s worker remittances increasing c13% m-o-m and c17% y-t-d in May to USD3.4bn, reflecting confidence in the FX liquidity in Egypt, (4) Net International Reserves (NIR) inching up c1% m-o-m and c4% y-t-d to USD49.0bn in July, and (5) Egyptian banks’ net foreign assets (NFA) position widening by c2% m-o-m and c72% y-t-d to USD14.9bn in June. On the flip side, (a) deposits not included in official reserves decreased by USD1.72bn m-o-m to USD8.70bn in July from USD10.420bn in the previous month, which we attributed to the government paying USD1bn of its liabilities to foreign oil companies operating in Egypt in July and the higher energy import bill for power generation, (b) the BOP recorded an overall deficit of USD1.37bn in 3Q24/25, reversing a surplus of USD489m in 2Q24/25, due to the reversal of the financial accout into a net outflow of USD256m from a net inflows of USD4.14bn in 2Q24/25, which was mostly related to other external dues repayments. Domestically, the PMI index increased to 49.5 in July from 48.8 in June, still below the 50.0 mark, due to signs of recovery in demand, particularly in the services sector. Regarding the energy prices, the government decided to postpone increases in the electricity and natural gas prices. For the electricity prices, the government decided to postpone hikes until October, after it was initially scheduled to take place at the beginning of FY25/26, due to the current economic conditions and the high consumption bills during the summer. As for natural gas prices, the government postponed increasing the price for the industrial sector by USD1/mmbtu, instead of applying it in August, as the fertiliser companies requested the government to increase local subsidised fertiliser prices if it increases natural gas prices. As for the attractiveness of Egypt’s carry trade, the latest 12M T-bills auction of 26.08% implies a positive yield of 6.66% using our 12M inflation estimate of 15.5% (after deducting a 15% tax rate for European and US investors), which also aligns with our estimates, suggesting that Egypt’s Carry Trade remains attractive. Despite the anticipated hike in energy prices, we still see room for the MPC to cut the policy rates by 200 bps mainly due to (1) the recent inflation deccelration for two consecutive months, (2) the need to stimuilate economic growth and ease the burden on the private sector, (3) the relative stability in Egypt’s external position, (4) the deflationary effect of the recent EGP appreciation, and (5) the still attractive carry trade despite the interest rate cut expectation.”
It is worth mentioning that, at its 10 July meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates at 24.0% and 25.0%, respectively, after it had cut policy rates by 325 bps in 1H25 of a total 1,900 bps rate hikes since the CBE started its tightening policy in 2022. Egypt’s annual headline inflation decelerated to 13.9% in July from 14.9% in June, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices inched down 0.5% m-o-m compared to a 0.1% m-o-m decrease in June. On the global front, on 30 July, 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, and on 24 July 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.
