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September 14, 2023

HC believes the MPC is to keep the policy rates unchanged

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled September 21st. Based on Egypt’s current situation, they expect the CBE to keep the policy rates unchanged.

Financials analyst and economist at HC, Heba Monir commented: “ We anticipate Egypt’s inflation to continue rising by 1.8% m-o-m and accelerate to 37.8% y-o-y in September, reflecting supply shortages of basic commodities and products mainly caused by the curbing of importation and lack of USD availability and the seasonality effect of the partial start of schools and universities’ academic year. Egypt’s overall balance of payment (BoP) recorded a deficit of USD317m in 3Q22/23, despite recording surpluses during the previous two quarters, mainly due to a c17% q-o-q drop in exports. Moreover, Egypt’s 1-year CDS soared c60% y-t-d and c31% m-o-m to 1,217 bps in mid-September 2023. On a more positive note, net international reserves (NIR) increased by 4.39% y-o-y and 0.14% m-o-m to USD34.9bn in August, and deposits not included in the official reserves increased by c1.6% m-o-m and 5.35x y-o-y to USD4.74bn in August. Egypt’s banking sector’s net foreign liabilities (NFL) narrowed by USD822m m-o-m to USD26.3bn in July, according to CBE data. Excluding the CBE, the banking sector’s NFL narrowed by USD965m m-o-m to USD16.1bn, due to an increase in banks’ foreign assets (excluding the CBE) by c8% m-o-m versus no change in banks’ foreign liabilities. Based on Egypt’s economic situation, we believe that the MPC is likely to maintain interest rates at its 21 September meeting to fully absorb the effect of the last 100 bps increase, especially that the inflation is supply-driven and not demand-driven. Additionally, the latest 12-month T-bills recorded an average yield of 25.541%, up 663 bps y-t-d and 83 bps m-o-m, partially reflecting the 3 August 100 bps rate hike, the spike in Egypt’s CDS and to maintain the attractiveness of Egypt’s carry trade, which also suggests that the MPC may hold interest rates at its upcoming meeting.”

It is worth mentioning that, in its 3 August meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to raise the benchmark overnight deposit and lending rates by 100 bps to 19.25% and 20.25%, respectively, with 300 bps total rate hike y-t-d and 800 bps in 2022. Egypt’s annual headline inflation accelerated for the third consecutive month to a record of 37.4% in August from its previous record of 36.4% y-o-y in July, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.59% m-o-m in August compared to 1.86%m-o-m in the previous month. On the global front, the US Federal Reserve raised interest rates in July by 25 bps to a range of 5.25-5.50%, a total of 100 bps y-t-d and 425 bps in 2022, with an expectation to maintain rates in its meeting next week, according to Reuters poll.