HC expects the CBE to maintain policy rates at its upcoming meeting

Financials analyst and economist at HC, Heba Monir commented:

We expect the MPC to maintain policy rates at its upcoming 2 October meeting, giving the economy enough time to fully absorb the 200 bps rate cut that occurred on 28 August and given the expected inflationary impact of the USD1.00/mmbtu increase in natural gas price to the industrial sector announced yesterday and the expected increase in gasoline and diesel prices that will be announced in October. For the external position, we would like to pinpoint that Egypt’s FX liquidity showed a noticeable improvement with: (1) Egyptian banks’ net foreign assets (NFA) position widening significantly by c24% m-o-m and 3.54x y-t-d to USD18.5bn in July; (2) Egypt’s worker remittances increasing c6% m-o-m and c19% y-t-d in July to USD3.8bn, reflecting confidence in the FX liquidity in Egypt; (3) the c5% EGP appreciation y-t-d to EGP48.2/USD, (4) Egypt’s 1-year CDS retreating to 284 bps from 379 bps at the beginning of the year, and (5) net International Reserves (NIR) remaining almost unchanged m-o-m with a c5% y-t-d increase to USD49.3bn in August. As for the attractiveness of Egypt’s carry trade, the latest 12M T-bills auction of 25.74% implies a positive real interest rate of 8.15% using our 12M inflation estimate of 13.7% (after deducting a 15% tax rate for European and US investors), suggesting that Egypt’s Carry Trade remains attractive. Meanwhile, the Fed’s rate cuts and the recent drop in Egypt’s CDS would lower the required yield on treasuries by foreign investors, which is not yet reflected in the recent treasuries auctions

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