Egyptian economist Baher Abdel Aziz, Chief Operating Officer at Facelift Consulting, said that improving Egypt’s external-sector indicators, declining credit risk, and the flexibility of the exchange rate reflect the economy’s ability to absorb the impact of regional geopolitical disruptions. However, continued inflationary pressures are likely to prompt the Central Bank of Egypt (CBE) to keep interest rates unchanged at its Monetary Policy Committee meeting scheduled for August 20.
Abdel Aziz noted that Egyptian banks’ net foreign asset surplus increased by $5.04 billion month-on-month to $27.995 billion in June 2026, compared with $22.957 billion in May. The increase was supported by a $4.81 billion rise in the total foreign assets of banks and the CBE during June, alongside a decline of $1.06 billion in banks’ liabilities.
He added that net international reserves and deposits excluded from official reserves increased by a combined $2.72 billion month-on-month, reaching $56.29 billion and $12.54 billion, respectively, in July.
According to Abdel Aziz, Egypt’s one-year credit default swap (CDS) spread has continued to trend downward, standing at around 190 basis points currently, compared with a year-high of 326 basis points at the end of March, reflecting a relative improvement in the market’s assessment of Egypt’s credit risk.
On the exchange rate, Abdel Aziz said the flexibility of the Egyptian pound helped ease pressures during periods of regional conflict. The pound initially lost around 13% against the US dollar since the beginning of the year, reaching EGP 54.7 per dollar in the first week of April, before recovering around 9% to EGP 50.4 per dollar currently, bringing its year-to-date decline to around 5%.
On the domestic front, Egyptian economist Baher Abdel Aziz highlighted the impact of the regional conflict, particularly higher domestic energy costs, as one of the key challenges facing the government’s fiscal consolidation targets.
He noted that the Egyptian government kept electricity tariffs unchanged for the first residential consumption bracket at the beginning of August, while increasing tariffs by around 12% for other residential brackets. This is expected to add to inflationary pressures during the third quarter of 2026.
Abdel Aziz expects average inflation to reach around 16% in the third quarter of 2026, compared with approximately 15% in the second quarter, reinforcing the case for a cautious monetary policy approach.
Regarding Egyptian Treasury bill yields, he said the yield on 91-day Treasury bills has declined since May 19, 2026, falling below the yield on 364-day Treasury bills and contributing to a normalization of the yield curve between the two maturities.
He added that the negative spread between yields on 182-day and 273-day Treasury bills and the 364-day tenor has been gradually narrowing, paving the way for the yield curve to return to more normal levels once geopolitical tensions in the region ease.
Yields on 182-day, 273-day and 364-day Treasury bills have risen by more than 200 basis points since the first week of March following the outbreak of the regional conflict.
Nevertheless, the latest 12-month Treasury bill yield of 25.07% implies a positive real interest rate of around 6.47%, based on an updated 12-month inflation estimate of approximately 14.8%, after accounting for a 15% tax rate for European and US investors. This indicates that current interest rate levels remain attractive.
Egyptian economist Baher Abdel Aziz said continued inflationary pressures, coupled with higher energy costs, make keeping interest rates unchanged the most likely scenario at the CBE’s August 20 meeting, while inflation, exchange-rate developments and financial-market conditions will remain key factors in determining the direction of monetary policy in the coming period.
