Heba Mounir, Macro Analyst at HC Securities & Investment, commented that Egypt’s external position is still relatively resilient, in our view, despite intermittent regional geopolitical turbulence, as evidenced by the following: (1) Egyptian banks’ net foreign assets (NFA) widened significantly by USD5.04bn m-o-m to USD27.995bn in June from USD22.957bn in May, due to a major increase of USD4.81bn m-o-m in total foreign assets for banks and CBE versus a decrease of USD1.06bn in banks’ liabilities and a moderate increase in the CBE’s liabilities of USD826m m-o-m, (2) net international reserves (NIR) and the deposits not included in official reserves increased by a total of USD2.72bn m-o-m to USD56.29bn and USD12.54bn in July, respectively, and (3) Egypt 1-year CDs are fluctuating on a downward trend, recording 190 bps currently, down from its peak at 326 bps at the end of March. The flexibility of Egypt’s exchange rate acted as a shock absorber during the regional conflict, with the EGP depreciating against the USD by c13% to EGP54.7/USD in the first week of April from the year’s beginning, and then appreciating by c9% to EGP50.4/USD currently, minimizing its y-t-d depreciation to c5%. Domestically, there are some challenges caused by the war, specifically Egypt’s higher energy costs, pressuring the government’s fiscal consolidation targets. In this regard, at the beginning of the current month, the Egyptian government kept the electricity tariff for the first household consumption bracket unchanged and raised it by c12% for the remaining residential brackets, increasing inflationary pressures in 3Q26; we estimate inflation to average c16% in 3Q26 from c15% in 2Q26. Moving to the treasury yields, the 91-day T-bills yield since 19 May 2026 has become lower than the 364-day T-bills yield, reverting to a normal curve, and the negative yield curve between the shorter maturities (182-day and 273-day) and the longer maturity, the 364-day T-bills, is somehow narrowing, in preparation to revert to normal levels pending the resolution of the geopolitical conflict. As for the yields of the 182-day, 273-day, and 364-day T-bills, they increased by more than 200 bps since the first week of March, after the outbreak of the regional war. Nevertheless, the latest 12M T-bills yield of 25.07% implied a positive real interest rate of 6.47% using our updated 12M inflation estimate of c14.8% (after deducting a 15% tax rate for European and U.S. investors), suggesting that Egypt’s carry trade remains attractive. Given accelerated inflationary pressures, we expect the MPC to keep interest rates unchanged at its 20 August meeting.
