Financials analyst and economist at HC, Heba Monir commented: The regional geopolitical turbulence from the US-Israeli war against Iran, which started on 28 February, is affecting the world 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, including:
(1) net international reserves (NIR) increasing c11% y-o-y to a record USD52.7bn in February, and deposits not included in the official reserves hiking 1.26x y-o-y to USD13.4bn; and
(2) Egyptian banks’ net foreign assets (NFA) position widening remarkably by c16% m-o-m and 3.39x y-o-y to USD29.5bn in January; Nonetheless, the war triggered net foreign outflows of around USD4bn from Egypt’s T-bill secondary market since 1 March to date, leading to a c9% depreciation of the EGP against the USD since 28 February to EGP52.6/USD, showing exchange rate flexibility, and it also led to a c48% surge in oil prices to USD107/bbl, which prompted the government to raise domestic diesel, LPG cylinders and octane gasoline prices by an average of c19% on 10 March, further increasing inflationary pressures. Accordingly, we upwardly revised our estimate for the annual headline inflation for March to 14.3% y-o-y and 2.4% m-o-m, and to an average of c13-14% y-o-y over 2026 from c10-11% y-o-y before the outbreak of the conflict, which could delay the easing cycle in our view. 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 23.4% implied a positive real interest rate of 6.94% using our 12M inflation estimate of c13% (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 updated 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 2 April meeting.
