The CBE is likely to resume its tightening cycle and raise rates for the third time since March

Newsletter

15 Aug 2022

It is interest rates week here in Egypt. The Central Bank of Egypt (CBE) is likely to resume its tightening cycle and raise rates for the third time since March when it meets this Thursday in a bid to curb down on inflation and support the EGP. It is expected that the Monetary Policy Committee (MPC) to raise rates by around 0.75 bps to 100 bps. The overnight deposit rate currently stands at 11.25%, and the lending rate is 12.25%, while the main operation and disc. rates are at 11.75%. The bank’s monetary policy committee (MPC) has hiked rates by 300 bps since March, but chose to leave them unchanged during its latest meeting in June, after inflation in May came in below expectations. (Zilla Capital)

We believe the MPC hiking rates by 100 bps as a proactive measure to curb inflation, which we expect will continue to rise over the course of the year driven by rising fuel and food prices, as well as the weakening EGP.
Inflation reached a fresh three-year high in July on the back of higher food and fuel prices, with consumer prices in urban areas rising 13.6% y-o-y. External pressures triggered by the war in Ukraine and rising interest rates in developed markets have squeezed foreign-currency liquidity in the banking system and caused the country’s FX reserves to fall 20% since March. (Zilla Capital)
Electricity rationing went into effect last Saturday across Egypt. Cabinet has approved measures announced by Prime Minister Moustafa Madbouly last week to limit the country’s use of electricity, raise natural gas exports, and increase inflows of foreign currency.
The government hopes to export around 15% of the gas that is currently allocated to the nation’s power stations, netting itself an extra 450 million USD a month in revenues. The idea is to bring in some extra FX liquidity by taking advantage of current demand for LNG, particularly in European markets, where countries are looking to plug the gap in their energy mix left by the abrupt exit of Russian gas. (Zilla Capital)
Egypt is planning to issue Eurobonds worth around 5 billion USD to 6 billion USD during fiscal year (FY) 2022/2023.
It is worth mentioning that the North African country is seeking to secure external financing of around 146.4 billion EGP as per the FY 2022/2023 budget, compared to an expected sum of about 78.4 billion EGP in the previous FY budget. On August 11th, Bloomberg reported that the Egyptian government was in preliminary talks with regional and international banks over raising a 2.5 billion USD loan amid intensive economic pressures. In March, Egypt issued Samurai bonds, for the first time, at a value of 500 million USD, equivalent to 60 billion JPY. (Arab Finance)
The value of stock and bond issuances in Egypt grew by 230% to 41.3 billion EGP in June 2022, versus 12.5 billion EGP in June 2021.
The value of founders’ stock recorded 1.86 billion EGP in June 2022, rising by 26% from 1.47 billion EGP in June 2021. Meanwhile, the value of capital increase stock stood at around 33.7 billion EGP last June, surging by 206% from 11 billion EGP in the same month a year earlier. The number of securitization issuances amounted to three in June 2022, compared to zero in June 2021, while the number of bonds issuances for corporates reached two last June, versus zero in the same month of 2021. (Ahram Gate)
Egypt’s foreign currency shortfall narrowed to 400 million USD in July from 3.9 billion USD in February due to the central bank’s move to restrict imports, eliminating the need for “a significant reduction” in the exchange rate “in the next stage”.
This governmental statement contradicts with Bloomberg’ latest piece detailing recent forecasts by analysts, who expect the currency to fall anywhere between 5% and 23% against the greenback due to rising external pressures. Tarek Amer has no plans to step down before his second term ends in November 2023, in response to posts making the rounds on social media and the tabloid press. (Economy Plus)
The Egyptian government is mulling over securing a loan of 2.5 billion USD due to growing economic pressures.
The government is negotiating with regional and international banks over the details of the financing. The talks are private and preliminary, adding that the discussions may not result in any deal. Moreover, First Abu Dhabi Bank and Abu Dhabi Commercial Bank are leading the loan, while other banks have been invited to take part in the financing. The loan is expected to be priced at nearly 400 basis points over a three-month secured overnight rating rate. (Bloomberg)
The volume of mortgage finance provided by companies in Egypt amounted to around 7.27 billion EGP in the first half (H1) of 2022.
This marks a 135.5% growth as compared to 3.08 billion EGP in the six-month period of 2021. In June, mortgage finance companies granted financing worth about 2 billion EGP, surging by 165.8% from 754 million EGP in June 2021. The value of mortgage refinances recorded 745 million EGP at the end of June 2021, down by 23.6% from 975 million EGP at the end of June 2021. (Ahram Gate)
Moving to our EGX and companies talks, Qatar Investment Authority is in talks with the Sovereign Fund of Egypt (SFE) to purchase stakes in several Egyptian companies in the fintech and renewables sector, including EGX-listed e-payment firms Fawry and e-Finance.
The acquisitions could go through within a few weeks. A few days after investing 1.3 billion USD in four EGX-listed firms, the Saudi Public Investment Fund (PIF) is interested in purchasing equity in Egypt Aluminum (EgyptAlum) and the new hotels company “within weeks”. (Al Borsa News)
The Public Enterprises Minister Hisham Tawfik had said earlier this year that the state plans to sell a 25-30% stake in EGX-listed EgyptAlum to a strategic investor — and also plans to offer a stake of up to 25% in the company it will create through a merger of seven or eight state-owned hotels.
The Abu Dhabi-based wealth fund is apparently interested in increasing its stake in Misr Fertilizers Production Company (Mopco), the newspaper claims. ADQ acquired 20% of the state-owned fertilizers company in April and reportedly wants to buy another 10-15%, they said. This would make the company majority foreign owned, coming a few days after the PIF acquired 25% of its shares. (Al Borsa News)