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HC believes the CBE to keep the policy rates unchanged

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled June 22nd. 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 expect the MPC to leave the overnight deposit and lending rates unchanged, despite the latest 2.72% m-o-m increase in May’s monthly inflation figure. We base our belief on: (1) the government’s need not to increase the burden on corporates’ borrowing capabilities, as they struggle with rising input prices and weak demand, (2) the Egyptian government’s need to keep its local debt servicing cost in check, (3) the drop in Egypt’s 1-year CDS which lowered the 12-moth required return on Egyptian T-bills compared to one month earlier. Despite the delay in the IMF’s program review and hence the tranche disbursement, Egypt’s 1-year CDS eased significantly to 1,221 currently from its record high of 2,510 in mid-May, lowering the required 12M T-bills rate by c200 bps from one month earlier, based on our calculations; and (4) the Egyptian government’s direction not to devalue the EGP currently due to the high inflation figures taking a toll on affordability, as announced by Egyptian President Abdel Fattah El Sisi yesterday. Despite a slight m-o-m improvement in the latest figures of the Egyptian banking sector’s net foreign liability (NFL) position and net international reserves (NIR), they evidence the USD shortage, and we continue to monitor them closely. Egypt’s banking sector’s NFL, including the CBE, narrowed slightly to USD24.1bn in April from USD24.5bn in March, according to CBE data. Excluding the CBE, the banking sector’s NFL also narrowed slightly to USD15.0bn from USD15.4bn in March. Also, net international reserves (NIR) slightly increased by 0.3% m-o-m up to USD34.7bn in May, while deposits not included in the official reserves dropped by c8% m-o-m to USD3.7bn in May.”

It is worth mentioning that, in its 18 May meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to keep the benchmark overnight deposit and lending rates unchanged at 18.25% and 19.25%, respectively, after it raised it by 200 bps on 30 March, which is the total rate hike y-t-d.  Egypt’s annual headline inflation accelerated again to 32.8% y-o-y in May from its record low of 30.6% y-o-y in April since it started accelerating in July 2022, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 2.72% m-o-m in May compared to 1.7% m-o-m in the previous month. On the global front, the US Federal Reserve maintained interest rates on Wednesday after it increased it by 25 bps on 4 May to a range of 5.00-5.25%, with a total of 75 bps y-t-d and 425 bps in 2022.