Arab Finance: In light of the latest Egyptian macroeconomic developments and geopolitical turmoil, the Financial Research Department of HC Securities and Investment Company expects the Monetary Policy Committee of the Central Bank of Egypt to keep the interest rate unchanged at its meeting scheduled to be held on Thursday, October 17, 2024, according to the statement sent on October 13.
Nemat Shoukry, Head of Financial Research at HC, said: “Egypt witnessed a significant improvement in its external financial position represented by: 1) An increase in the balance of payments surplus for the fourth quarter of the fiscal year 23/24 approximately nine times on an annual basis and approximately 22% on a quarterly basis.” To 5.55 billion US dollars, 2) The Egyptian banking sector maintained its net foreign currency assets position at 9.73 billion US dollars in August, but it decreased by 3.54 billion US dollars on a monthly basis, shifting from net liabilities of the banking sector in foreign currency amounting to 25.9 billion dollars. At the same time last year, 3) net foreign exchange reserves rose by US$140 million in September to US$46.737 billion from US$46.597 billion in August, and 4) Egypt's one-year CDS value index fell to 407 basis points from 857 basis points on January 1. However, economic growth in Egypt remains limited due to the rise in interest rates affecting private sector investments. Egypt’s Purchasing Managers’ Index for September fell below the 50-point threshold, to 48.8 It had exceeded it in August, which indicates a new decline in the activity of the Egyptian non-oil private sector, as rises in commodity prices led to a decline in sales and a slowdown in commercial activity, and the gross domestic product reached 2.4% in the fourth quarter of 23/24 and thus the growth of the gross domestic product. By 2.4% for FY23/24, down from 3.8% in FY22/23, also affected by geopolitical tensions.
In its effort to confront these challenges, the government announced investment incentives and a tax exemption package to encourage domestic and foreign private investments to stimulate economic growth.
As for inflation, we expect inflation to accelerate by 1.0% on a monthly basis to 26.5% on an annual basis in October due to increases in electricity prices for the household, commercial and industrial sectors in September and a possible rise in energy prices in October with the scheduled meeting of the government committee responsible for pricing gasoline and diesel. In October to discuss gasoline and diesel prices for the fourth quarter of 2024, the Egyptian Natural Gas Holding Company is considering increasing natural gas prices for the industrial sector by a rate ranging between 10% and 30% according to each industry, due to the high costs of importing natural gas.
As for interest rates, the yield on 12-month Egyptian treasury bills came in at 26.238%, reflecting a real interest rate of 3.00% (after deducting a 15% tax rate for European and US investors and based on our forecast of the 12-month average inflation rate of 19.3%), It is higher than the real interest rate for 12-month US Treasury bills at 1.86%, but it is still lower than the real interest rate for 12-month Turkish Treasury bills at 17.4%.
Despite the need to lower interest rates to stimulate GDP growth, we expect the Monetary Policy Committee to postpone this cut until later in the year, due to our expectation of a higher inflation rate in October, and therefore we expect the Committee to keep interest rates unchanged in Its next meeting is on October 17. “
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