HC Expects Stable Interest Rates Amid Economic Developments

Heba Monir, a financial analyst and economist at HC, highlighted that Egypt’s external position remains stable, albeit with reduced USD liquidity compared to the previous month. Key observations include:

Net International Reserves (NIR)

Increased marginally by USD 10.0 million in November to USD 46.952 billion, compared to USD 46.942 billion in October.
This marks the smallest rise since September 2022, attributed to Egypt’s commitments to repay USD 3 billion in green and Islamic financing to Gulf banks and USD 1.32 billion in matured Eurobonds.

Banking Sector’s Foreign Assets

The net foreign assets (NFA) position narrowed by 10.8% month-on-month, declining to USD 9.21 billion in October from USD 10.3 billion in September.
A year earlier, the sector had a net foreign liability (NFL) of USD 27.2 billion. Excluding the Central Bank of Egypt (CBE), the NFL now stands at USD 1.41 billion.

Credit Default Swaps (CDS)

Egypt’s 1-year CDS dropped significantly to 353 basis points, down from 857 bps at the start of 2024.

Economic Activity and Inflation Outlook

The Purchasing Managers’ Index (PMI) rose for the second consecutive month to 49.2 in November, up from 49.0 in October. While still below the neutral 50.0 mark, the softer contraction reflects weak customer demand.

HC predicts inflation to decelerate in December to

24.1% year-on-year and 0.2% month-on-month, supported by stable or declining vegetable and fruit prices due to seasonal factors.

Currency and Interest Rates Trends

The Egyptian Pound (EGP) has depreciated by approximately 2.5% since early December, driven by the USD’s strength globally.

The latest 12-month Treasury bill auction yielded a positive real interest rate of 2.9%, factoring in the projected inflation rate of 19.4% for the next year.

Monetary Policy Expectations

HC anticipates that the Monetary Policy Committee (MPC) of the Central Bank of Egypt will maintain interest rates at their upcoming meeting on 26 December. The decision aims to preserve the carry trade’s appeal until inflation shows further moderation.

Recent Monetary Policy Decisions

On 21 November, the MPC held rates steady at 27.25% for overnight deposits and 28.25% for overnight lending for the fifth consecutive meeting.

Since initiating its tightening cycle in 2022, Egypt has raised rates by a total of 1,900 basis points, including a 600 bps hike in March 2024.

Global Monetary Developments

The US Federal Reserve reduced its federal funds rate by 25 bps on 18 December, bringing the range to 4.25%-4.50%.

The European Central Bank (ECB) followed suit, cutting key rates by 25 bps on 12 December, marking the second reduction since mid-2024.

HC concludes that Egypt’s economic policies and external position remain aligned to manage current challenges, focusing on stability and growth.

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