Cairo, 24 August 2025:
In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment expects the CBE to cut interest 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.
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