HC Securities & Investment expects the Monetary Policy Committee of the Central Bank of Egypt to raise interest rates by 100 basis points in the coming period, as inflationary pressures are expected to persist during the final quarter of the current year.
Rates held steady for the fourth time
At its Monetary Policy Committee meeting on Aug. 20, the Central Bank of Egypt kept its overnight deposit and lending rates unchanged at 19% and 20%, respectively, for the fourth consecutive time. This followed a 100-basis-point cut in February, bringing total cuts since 2025 to 825 basis points, compared with cumulative increases of 1900 basis points since the tightening cycle began in 2022.
Data from the Central Agency for Public Mobilization and Statistics showed annual urban inflation slowing to 14.5% in August, from 14.9% in July, while prices rose 0.1% month on month after remaining stable in July.
External indicators stable, reserves rise
Heba Mounir, a macroeconomic analyst at HC, said Egypt’s external economic position was showing a degree of relative stability, but said that may not be enough to address the challenges ahead as regional geopolitical disruptions intensify and affect energy prices.
Mounir pointed to five-year credit default swaps holding at 276 basis points, compared with a peak of 431 basis points in March 2026, as well as a roughly 7.09 billion dollar increase in the banking sector’s net foreign assets between April and July, bringing them to 28.4 billion dollars at the end of July.
Net international reserves rose by about 5.76 billion dollars since the start of the year to a record 57.2 billion dollars in August, supported by the receipt of 3.8 billion dollars from the International Monetary Fund and 2.5 billion euros from the European Union. Deposits excluded from official reserves also increased to 14.7 billion dollars at the end of August, Mounir said.
She added that exchange-rate flexibility helped the Egyptian economy absorb shocks stemming from regional tensions. The pound fell by about 13% against the dollar during the first week of April to 54.7 pounds per dollar, before recovering about 5% of its value to reach around 52.1 pounds per dollar currently.
Energy and rent price pressures
Mounir said the government’s move to reduce energy subsidies, aimed at maintaining budget targets and providing additional resources to support the groups most in need, had contributed to cumulative inflation rising to about 9.89% since the start of the year.
HC expects inflation to rise by 1.3% month on month in September, driven by higher housing, water, electricity, gas and fuel costs, alongside annual increases in old-rent rates and the seasonal effect of the start of the academic year.
The company expects inflation to rise by 2.1% month on month in October, in light of its forecast for gasoline and diesel prices to increase by about 10%. It also expects inflationary pressures to persist during the final quarter of the year as oil prices rise following Saudi Arabia’s closure of the East-West oil pipeline, resulting in an additional shortfall in global supply, alongside moves by some central banks in advanced economies to tighten monetary policy.
Positive real yield on Treasury bills
Mounir said the latest offering of 364-day Treasury bills reflected a positive real interest rate of 8.35%, based on the company’s estimate of inflation over the next 12 months at 13.3% and after deducting the 15% tax imposed on European and US investors. This indicates that Egyptian debt instruments remain attractive to foreign investors.
