As Zilla Capital expected last week the CBE kept the interest rates fixed and unchanged

Newsletter

25 Sep 2022

As Zilla Capital expected last week, the Central Bank of Egypt (CBE) kept the interest rates fixed and unchanged. The Central Bank’s decision came in line with the expectations of the research department of Zilla Capital, contrary to all market expectations. Most of the market expectations went to the need for the monetary policy committee of the central bank to raise interest rates within 100-200 bps during its last Thursday meeting, but we believed that the central bank will go to fixing interest rates. The Monetary Policy Committee decided to maintain the overnight deposit and lending rates at 11.25% and 12.25%, respectively. This was for the following reasons; Stability in high rates of inflation, especially since most of the shock caused by external data has already been reflected in the domestic inflation rate. (Zilla Capital & CBE)

Moreover, the nature of Egypt’s economy, the shape of its trade balance and budget deficit, and the rate of borrowing to GDP (at the level of individuals or institutions, not the government) make the effect of raising interest rates in calming inflation very small in Egypt.
External variables with regard to oil prices and the food price index may indicate that the worst in terms of "imported inflation" has passed, which may be a positive indicator of the inflation pattern during the coming period. (Zilla Capital & CBE)
Limited capital account impact, the foreign investor remains conservative with regard to entering emerging markets in general.
The exchange rate in Egypt occupies the largest part of the investment decision, as it does not wait for a movement of interest upwards as much as it waits for clarity regarding the exchange rate. Here, it should be noted that raising the interest will not attract foreign investors to buy the Egyptian pound and will not support the cash reserve, because the return on the Eurobonds of different terms is currently at 15%, which will represent an obstacle to investing in treasury bonds in the Egyptian pound with a return close to 12%. (Zilla Capital & CBE)
After fixing the interest rate, the Central Bank decides to raise the mandatory reserve ratio for banks to 18%.
The amount of liquidity expected to be absorbed from the banking market after the decision to raise the mandatory reserve ratio to 18%, estimated at about 140 to 150 billion EGP, out of 600 billion EGP in surplus liquidity available in the market. It is worth noting that the Egyptian market has a structural liquidity surplus as a result of several factors, including the continuous growth in savings in the banking sector. The banking sector deposits rose to 6.5 trillion EGP in August and loans to around 2.9 trillion EGP. The total deposits in banks reached 6.5 trillion EGP at the end of August, compared to 5.6 trillion EGP at the end of 2021, an increase of 900 billion EGP within 8 months. This decision helps restrict the monetary policy followed by the central bank, especially with the decision to fix interest rates yesterday and helps absorb inflationary pressures to reduce the volume of liquidity. (Zilla Capital & CBE)
Finance Minister, Dr. Mohamed Maait: Egypt explores financing options from China, Japan.
Egyptian Minister of Finance Mohamed Maait announced that the government is exploring financing options including soft loans from China and Japan. Moreover, Maait added that Egypt seeks to reach an agreement with the International Monetary Fund (IMF) within a month or two. On September 15th, Standard Chartered plc forecast that Egypt would receive a loan worth 6 billion USD from the IMF prior to the end of September. (Bloomberg)
In addition, Maait: We invite investors around the world to invest in Egypt.. in conjunction with the Climate Summit.
We have promising opportunities and our economy is more diversified and resilient to global shocks. During his participation in the Bloomberg Emerging Markets and Borders Forum in New York, the minister said: “In Egypt, we adopted proactive policies to adapt to external shocks, maintain stability in financial performance, and support social protection programs, as we succeeded during the last fiscal year ending in June 2022, in Achieving a growth rate of 6.6%, a primary surplus of 1.3%, and a total deficit of 6.1% of GDP, and bringing the debt rate of budgetary organs to 87.2% of GDP, and we aim to reduce it to 75% by 2026. (Bloomberg)
Egypt’s Cabinet nods to establishment of 2 free zone companies.
The Egyptian Cabinet has approved the draft law regarding the establishment of a private free zone under the name of Volo Textile as a joint stock company. The new company will be built in Ismailia governorate on an area of 69,215 square meters (sqm) for the operation of a spinning, dyeing, and printing factory. The factory is expected to offer up to 1,010 job opportunities and it targets the production of 8,400 tons in the first year of operation to reach 10,800 tons in the following year. (Arab Finance)
Egypt supports tourism sector with 50 billion EGP to finance the renovation of hotels and their working capital and salaries.
The sector has been financed with this amount under the Central Bank of Egypt’s (CBE) initiative to face the repercussions of the Covid-19 pandemic. It is worth noting that Egypt topped Africa in terms of hotels projects in 2022, with a 25% share of total hotels development plans in the continent. Cairo’s hotels occupancy rate grew by 106% year-on-year (YoY) in the first quarter (Q1) of 2022, while hotel occupancy rates in Sharm El-Sheikh and Hurghada recorded 46% and 84%, respectively. (Arab Finance)
Arabia for Development pumps 400 million EGP to build an international school in Sun Capital.
Arabia for Real Estate Development has signed a contract with Tanweer Company to build and operate a comprehensive international school for all educational levels within the Sun Capital project in Sixth of October City. The company intends to inject investments estimated at 400 million EGP in favor of building the international school in the project, where the school will be built on a total area of 18,000 square meters in the Sun Capital project, and the construction of the school is expected to be completed in mid-2023. (Al Mal)
SODIC: A number of acquisition deals have been resolved at the end of this year.
Maged Sherif, the managing director of the Sixth of October Development and Investment SODIC, confirmed that the company is studying a number of investment opportunities in the eastern and western regions of Cairo, and none of them have been settled so far, explaining that there are negotiations taking place during the current period regarding some of those investment opportunities. (Al Mal)
Arab Dairy - Panda is studying alternatives to overcome the shortage of raw materials and is moving to focus on exports.
The Board directed a study of the impact of this on local sales in order to reduce the severity of the financial impact on the company. Arab Dairy recorded a net profit of 20.15 million EGP from the beginning of January until the end of June 2022, compared to 1.49 million EGP during the same period last year, taking into account minority rights. The company's sales fell to 554.49 million EGP at the end of June, compared to 719.2 million EGP during the same period last year. (EGX)
Egypt’s HCFI, Ekaterra Tea Egypt ink cooperation protocol.
Holding Company for Food Industries (HCFI) has signed a cooperation protocol with Ekaterra Tea Egypt. The protocol aims to increase the number of successful partnerships between the private and public sectors in the field of retail development. The cooperation agreement also targets the development of affiliated sale outlets of HCFI and boosting their capacities. (Arab Finance)