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 May 21, 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 as and Egypt. Egypt’s improved external position and flexible exchange rate managed to relatively absorb the conflict’s implications until now. Despite Egypt recording net foreign outflows of USD3.2bn from its treasury secondary market from 19 February until the end of April, its net international reserves (NIR) increased by a total of USD263m in March and April to a record USD53.0bn in April, while deposits not included in the official reserves declining by a total of USD2.60bn in March and April to USD10.8bn; however, Egyptian banks’ net foreign assets (NFA) dropped significantly by USD8.18bn during February and March, to USD21.3bn by the end of March, mainly due to the net foreign outflows from Egypt’s treasury market, leading to a c10% y-t-d EGP devaluation to EGP52.9/USD, as of 15 May, showing exchange rate flexibility. Domestically, the government raised diesel, LPG cylinders and octane gasoline prices in March by an average of c19% on 10 March and the natural gas for the industrial sector (cement, iron, steel, non-nitrogen fertilisers, and others) on 3 May, due to mainly a c51% surge in oil prices to USD109/bbl, in addition to a c58% increase in natural gas prices (Dutch TTF – Front month futures) to USD17.1/MMBtu and c5% increase in wheat prices to USD244/ton, which pressure the FX liquidity and will result in inflationary pressures, in our view. To prevent dollarization and tighten money supply, public banks increased the interest rate on newly issued three-year certificates of deposit (CDs) by around 1.25% to an average of 17.25%, prompting private banks to follow suit and issue similar products with a higher minimum amount per CD; which should also help limit inflation acceleration and support pensioners who rely on high-yielding CDs. Regarding the treasury yield, the CBE slightly reversed the direction of interest rates on treasuries to keep the carry trade attractive, where the latest 12M T-bills auction of 24.4% implied a positive real interest rate of 4.57% using our 12M inflation estimate of c16% (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 upward 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 21 May meeting.”
It is worth mentioning that, at its 2 April meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates at 20.0% and 21.0%, 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 14.9% y-o-y in April from 15.2% y-o-y in March, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices increased by 1.1% m-o-m in April, compared to an 3.2% m-o-m increase in March. On the global front, on 26 April, 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, and on 30 April, the European Central Bank (ECB) maintained the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility at 2.00%, 2.15% and 2.40%, respectively, bringing total cuts to 200 bps, since it started cutting rates in June 2024 after it hiked rates by 450 bps since it started its tightening policy in 2022.
