In light of Egypt’s macro economy developments and the geopolitical conditions, the Research Dept. at HC Securities & Investment expects the CBE to keep the policy rates unchanged at its upcoming July 9, 2026 meeting.
Financials analyst and economist at HC, Heba Monir commented: “The regional geopolitical turbulence from the US-Israeli war against Iran, which began on 28 February, is still affecting the global economy and Egypt. Egypt’s stable external position and flexible exchange rate have managed to absorb the conflict’s implications relatively well until now, with the following; (1) Net international reserves (NIR) increased by a total of USD1.68bn y-t-d to USD53.1bn in May, while deposits not included in the official reserves increased by a total of USD647m y-t-d to USD11.0bn, after these deposits had dropped by a total of USD2.90bn from February to April and started recovering in May, (2) Egyptian banks’ net foreign assets (NFA) decreased moderately by USD6.60bn to USD22.9bn in April, from a peak of USD29.5bn in January over the past five years. The NFA figure recovered by USD1.57bn m-o-m in April, after dropping by a total of USD8.18bn in February and March, backed by narrower net foreign treasury outflows. Egypt recorded net foreign inflows of USD4.55bn in 6M26, compared to USD1.34bn only in 6M25. In parallel, the EGP appreciated against the USD by c11% to EGP49.1/USD from EGP54.7/USD in the first week of April, minimizing its y-t-d depreciation to only c3%, (3) Egypt’s USD sources showing stability and improving with worker remittances increasing c38% y-o-y to USD17bn in 4M26, and Suez Canal revenues increasing by c27% y-o-y to USD1.56bn in 4M26. Domestically, we expect headline inflation to move in a sideway direction, after it decelerated to 14.6% y-o-y and 1.6% m-o-m in May from a high of 15.2% y-o-y and 3.2% m-o-m in March, the highest in the past 14 months, affected by the war’s implications on energy prices and FX depreciation. In light of this, the latest 12M T-bills yield of 24.7% implied a positive real interest rate of 6.78% using our updated 12M inflation estimate of c14% (after deducting a 15% tax rate for European and U.S. investors). Therefore, given the geopolitical risks and their implications for Egypt’s USD resources, our downward revision of inflation estimates, the need to maintain the carry trade attractiveness, and the budget deficit targets, we expect the MPC to keep interest rates unchanged at its 9 July meeting.”
It is worth mentioning that, at its 21 May meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates at 19.0% and 20.0%, respectively, reversing a total of 825 bps since 2025 of a total 1,900 bps rate hikes since the CBE started its tightening policy in 2022. The MPC also reduced the required reserve ratio (RRR) for commercial banks by 200 bps to 16.0% from 18.0% in February 2026. Egypt’s annual headline inflation decelerated to 14.6% y-o-y in May from 14.9% y-o-y in April, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices increased by 1.6% m-o-m in May compared to 1.1% m-o-m in April. On the global front, on 17 June, the U.S. Federal Reserve maintained the target range for the federal funds rate at 3.50-3.75% with total cuts of 175 bps since September 2024, after it hiked rates by 525 bps since it started tightening policy in 2022, while the European Central Bank (ECB) raised the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility by 25 bps to 2.25%, 2.40% and 2.65%, respectively, with total net cuts of 175 bps since it started cutting rates in June 2024 after it hiked rates by 450 bps since it started its tightening policy in 2022. Given Egypt’s current economic situation, we present below our expectations for the possible outcome of the 9 July MPC meeting..
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