Arab Finance: HC Securities & Investment expects that the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will keep the interest rates unchanged at its coming meeting on April 2nd.
Heba Monir, analyst and economist at HC, attributed the forecast to current geopolitical risks and their implications for Egypt’s foreign resources, emphasizing the need to maintain trade attractiveness.
The US-Israeli war against Iran is affecting the global economy as well as Egypt.
“However, Egypt’s external position showed resilient parameters before the outbreak of the war, which relatively cushioned it against the external shocks,” Monir affirmed.
Net international reserves (NIR) are increasing 11% YoY to a record $52.7 billion in February, with deposits not included in the official reserves increasing 1.26x YoY to $13.4 billion.
Egyptian banks' net foreign assets (NFA) position widened remarkably by 16% month-on-month (MoM) and 3.39x year-on-year (YoY) to $29.5 billion in January.
Nonetheless, the war triggered net foreign outflows of around $4 billion from Egypt's treasury bills (T-bills) secondary market from March 1st to date, leading to about 9% depreciation of the EGP against the USD since February 28th to EGP 52.6/USD.
The conflict led to around a 48% surge in oil prices to $107/bbl, which prompted the government to raise domestic diesel prices, further increasing inflationary pressures.
The analyst indicated: “Accordingly, we upwardly revised our estimate for the annual headline inflation for March to 14.3% YoY and 2.4% MoM and to an average of 13-14% YoY over 2026 from c10-11%YoY before the outbreak of the conflict, which could delay the easing cycle in our view.”
The CBE slightly changed its approach to interest rates on treasuries to keep the carry trade appealing, with the latest 12-month T-bills auction showing a rate of 23.4%, which means there is a positive real interest rate of 6.94% based on the 12-month inflation estimate of approximately 13%.
International Monetary Fund (IMF) Spokesperson Julie Kozack recently highlighted that the impact of the regional conflict on Egypt has “remained relatively contained."
Kozack elaborated that a flexible exchange rate played a vital role as a “shock absorber,” helping mitigate the impact of global volatility while preserving international reserves.
