HC expects the CBE to maintain the overnight deposit and lending rates

Based on Egypt’s macro economy developments, HC Securities & Investment expects the CBE is to most likely keep the policy rates unchanged in its upcoming meeting scheduled May 23rd, 2024

Financials analyst and economist at HC, Heba Monir commented: “ We expect the MPC to maintain the overnight deposit and lending rates at its upcoming meeting given (1) the y-o-y deceleration in headline inflation for two consecutive months, despite m-o-m increases, (2) improved FX liquidity post the Ras El Hekma investment deal after receiving around USD25bn from the UAE and the IMF, which helped increasing net international reserves (NIR) by c19% y-o-y and c1.7% m-o-m to USD41.1bn in April and narrowing the net foreign liabilities (NFL) of the banking sector significantly by c81% m-o-m and c83% y-o-y to USD4.18bn in March, (3) the improvement in Egypt's one-year CDS to 287 bps from 857 bps on 1 January, and (4) the recent improvement in Egypt's credit outlook by Moody's to Positive from Negative and to Positive from Stable by Fitch and S&P. 

Egypt's latest 12M T-bill rates retreated to 25.98%, implying an estimated negative real yield of c6.8%, down from its peak of 32.30% in mid-March. The decline in T-bills rates reflects a rebound in foreign holdings in treasuries by around USD11-12bn until 8 April (according to banking sector sources), following the CBE's decision to allow market supply and demand forces to determine the FX rate, the Ras El Hekma investment deal, and resumed IMF program.

It is worth mentioning that, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) hiked the benchmark overnight deposit and lending rates by 600 bps on 6 March in a special meeting to 27.25% and 28.25%, respectively, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt's annual headline inflation decelerated to 32.5% in April from 33.3% y-o-y in March, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.1% m-o-m in April, compared to an increase of 1.0% m-o-m in the previous month. On the global front, the US Federal Reserve maintained interest rates at its current range of 5.25-5.50% after it hiked rates by 100 bps in 2023 and 425 bps in 2022, with a total of 525 bps since it started its tightening policy. Based on Egypt's current economic situation, we present below our expectations for the possible outcome of the 23 May MPC meeting.”