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In light of Egypt’s macro economy developments and the geopolitical conditions, the Research Deptartment at HC Securities & Investment expects the CBE to keep interest rates unchanged at its upcoming October 29, 2026 meeting.
Financials analyst and economist at HC, Heba Monir commented: “Global economic and political instability is casting a shadow over the Egyptian economy, weighing on improvements in Egypt’s external position. On the positive front, Egyptian banks’ net foreign assets (NFA) and net International Reserves (NIR) reached a record high in more than five years, USD31.2bn as of August, and USD57.3bn as of September, respectively. On the flip side, global and geopolitical instability affected the following: (1) Egypt’s 5-year CDS, increased to 343 bps currently from its lowest record of 262 bps on 28 August y-t-d, (2) the EGP depreciated against the USD by c14% y-t-d and c5% m-t-d, exceeding the previous peak at EGP54.73/USD on 7 April, and reflecting the flexibility of the exchange rate. Although we see this depreciation wave as temporary, it could unfortunately persist until year-end due to mixed domestic and external factors. Externally, the unstable geopolitical situation increases net foreign outflows, given Egypt’s heavy import bills for energy and wheat, as well as external debt dues and repayments for foreign oil companies operating in Egypt. Domestically, 4Q26 would see tighter FX liquidity due to profit repatriation and likely higher imports of certain food items in preparation for Ramadan. On domestic inflation, the Egyptian government’s committee in charge of indexation of gasoline and diesel prices decided to keep gasoline and diesel prices unchanged until the end of December 2026, which will help cool inflation; hence, we expect it to average c13% in 4Q26 instead of 14.5% previously. For 2027, we updated our inflation forecast to average 11.5% from 10.9% previously, reflecting the continued risk of inflationary pressures from global instability. Regarding Egypt’s carry trade competitiveness, the latest 364-day T-bills of 25.91% implied a positive real interest rate of 10.5% using our updated 2027 inflation estimate of c11.5% (after deducting a 15% tax rate for European and U.S. investors), suggesting that Egypt’s carry trade remains attractive. Therefore, given the carry trade attractiveness and persistent geopolitical risk, we expect the MPC to keep overnight rates unchanged at current levels at the upcoming meeting.”
It is worth mentioning that, at its 24 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates at 19.0% and 20.0%, respectively, for the fifth consecutive time after it cut rates by 100 bps in February, reversing a total of 825 bps since 2025 of a total 1,900 bps in rate hikes since the CBE started its tightening policy in 2022. Egypt’s annual headline inflation decelerated to 13.9% in September from 14.5% y-o-y in August, according to Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices increased 1.3% m-o-m compared to 0.1% m-o-m in August. On the global front, on 16 September, the U.S. Federal Reserve raised the target range for the federal funds rate by 25 bps to 3.75-4.00% with total net cuts of 150 bps since September 2024, after it hiked rates by 525 bps since it started tightening policy in 2022, and on 10 September the European Central Bank (ECB) raised the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility by 25 bps to 2.50%, 2.65% and 2.90%, respectively, with total net cuts of 150 bps since it started cutting rates in June 2024 after it hiked rates by 450 bps since it started its tightening policy in 2022.
