The Financial Research Department of HC Securities and Investment expects the Central Bank of Egypt to cut the interest rate by 200 basis points at its meeting scheduled for Thursday, August 24, 2025.
Heba Mounir, macro-economic analyst at HSBC, said: Egypt’s external banking position is stable at US$0.02 billion according to the following indicators: the Egyptian pound has appreciated by 5% since the beginning of the year to reach 48.6 Egyptian pounds against the dollar, Egypt’s one-year credit risk swap index has fallen to 267 basis points from 379 basis points at the beginning of the year, increasing remittances by 13% on a monthly basis and 17% since the beginning of the year in May to C$3.4 billion.
On the other hand, deposits not included in official reserves fell by $1.72 billion on a monthly basis to $8.70 billion in July from $10.420 billion a month earlier.
It is worth mentioning that the government paid $1 billion of its obligations to foreign oil companies operating in Egypt in July, as well as the increase in the bill for energy imports to generate electricity, while the balance of payments recorded a total deficit of $1.37 billion in the third quarter of the fiscal year 2024/2025, compared to a surplus of $489 million in the second quarter of the same fiscal year, due to the conversion of the fiscal account to net outflows of some $256 million against net inflows of $4.14 billion in the second quarter.
Domestically, the PMI rose to 49.5 in July from 48.8 in June, but is still below 50.0 points, mainly due to the services sector.
In terms of energy prices, the government decided to postpone the price increases for electricity and natural gas, the government decided to postpone the price increase until October, after it was scheduled to be implemented by the beginning of the fiscal year 2025/2026, due to the current economic conditions and high consumption bills during the summer.
As for natural gas prices, the Government delayed an increase in the price of the industrial sector by $1 per million British heat units, rather than in August, after the fertilizer companies asked the Government to increase subsidized local fertilizer prices if they raised natural gas prices.
With regard to the attractiveness of foreign flows in government debt instruments, the last of the treasury authorizations for the 12-month period of 26.08 per cent reflected a positive return of 6.66 per cent according to our estimates of inflation for 12 months of 15.5 per cent (after deduction of a tax rate of 15 per cent for European and American investors), which is also consistent with our expectations, indicating that government debt instruments in Egypt remain attractive.
In spite of the projected increase in energy prices, we continue to see an opportunity to reduce interest rates by 200 basis points by the Monetary Policy Committee because of the following reasons: inflation slowed for two months, respectively, and the need to stimulate economic growth and reduce the burden on the private sector, the relative stability of Egypt ' s external situation, the regression effect of the recent appreciation of the Egyptian pound, despite the continued attractiveness of government debt instruments.
It should be noted that, at its previous meeting, on 10 July, the Committee on Monetary Policy of the Central Bank of Egypt maintained the rates of one-night deposit and loan returns at 24.0% and 25.0% respectively, after 325 base points were lowered during the first half of 2025, out of a total of 1,900 high-interest basis points since the Central Bank began its emphasis policy since 2022.
Egypt ' s annual inflation rate slowed to 13.9% in July from 14.9% in June, according to the data of the Central Public Mobilization and Statistics Authority, where monthly prices fell by 0.5% on a monthly basis, compared with a decrease of 0.1% on a monthly basis in June.
At the global level, on 30 July, the United States federal maintained its interest rate target at 4.25-4.50%, bringing the total reduction to 100 base points after 525 base points have been raised since its emphasis policy began in 2022. On 24 July, the European Central Bank has maintained the main interest rates on deposit facilities, major refinancing operations and marginal lending facilities at 2.00 per cent, 2.5 per cent and 2.4 per cent, respectively.
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