Egypt, April 18th 2025,
Foreign investors had reduced exposure already ; CBE delivers updated statistics and a Rate Cut !
Welcome to MENA MARKET LAB !
We aim here to bring you regular updates on factors and events impacting financial markets in the Middle East and North Africa region with an accent on foreign exchange and rates.
We also aim to bring reflections on certain topics and subjects, close to recent events, which we think are worth stopping on .
Thank you for your attention !
Ancestors of Egypt’s Abyssinian cats !
Foreign investors had reduced exposure already ; CBE delivers updated statistics and a Rate Cut !
New norm ? It was interesting to read in an article in the FT where the top strategist of one of the largest US banks was saying that for the first time in his quarterly macro assessment, he was really carefully weighting his words ! Some GOP congressmen or senators said that their main fear was for their families to be targeted or harassed should they stray from the righteous path ! And I thought that finally with January 20th 2025, the straight jacket on freedom of speech was removed.
Foreign investors had reduced exposure already ; CBE delivers updated statistics and a Rate Cut !
Remittances from Egyptians working abroad surged by 81 % in the first seven months of the 2024/25 Fiscal Year( July-January ) , reaching 20 bn $, up from 11 bn a year ago.
For the month of January only , the year-on-year rate rose by 83.2 % to 2.9 bn $ from 1.6 bn. In late 2024, the CBE launched a service that allows the instantaneous receipt of remittances and their immediate credit to the recipient’s bank account.
Suez Canal receipts : the above number is good and counterbalance the confirmation by the authorities of the final numbers for 2024 : 4 bn $ in 2024 from 10.25 bn in 2023. And looking at the situation with Israel, continuing its destructive operations in Gaza , the West Bank, Lebanon, Syria ( and barred for now to target Iran by the US President ) and the US targeting Yemen, it is hard to see the Houthis putting a halt to their threats to the Canal shipping line.
Talking about money : Egyptians make up 4 % of the population of Dubai. Among foreign nationals, Egyptians are the 5th buyers of properties in Dubai. According to a real estate agency, the number of Egyptians buying in Dubai has grown by 150 % in the 1st two months of 2025 compared to 2024, supported by an increase of 61 % of Egyptians in the Emirate.
Qatar – Egypt : A few days ago, a joint statement released by the Egyptian president’s office announced that the two countries have agreed to work towards a package of 7.5 bn $ in direct Qatari investments. No further details were given.
In a further effort to attract investments, Egypt granted golden license to all new Saudi projects, the Prime Minister announced. The move is to ease investment procedures and boost Saudi inflows into the country. Saudi private sector investments stand at 35 bn $ with a target at 50bn within 5 years.
According to the Prime Minister, the government has taken exceptional steps to address longstanding issues and was working hard to solve the rest. I wouldn’t be surprised if the most critical issue was the repatriation of proceeds.
Egypt sees its financing needs rising for FY 2025/26 by 25 % to 59 bn $. On the back of a wider budget deficit, higher interest servicing and debt repayments.
On the positive side, the government plans to increase tax collections on goods and services by 34 % to over 1.1 trillion EGP. The bulk will come from VAT as they expect to remove one third of VAT exemptions.
Markets,
· The Usd/Egp rebounded before the weekend from a low touched earlier this week below 51.00 to close yesterday at 51.12 , the recent high was 51.70 last week.
· The NDF market also eased off to below 60.00 ( 1 year shown 59.70/60.00 ) ; recent high 60.50/61.00. Nothing much dealing today as Easter Friday and London is closed.
· Secondary market activity dropped significantly from last week : total volume at 301 bn EGP from 500 bn. Most significantly, foreigners were small buyers this week, about 125 mio $, same as what “ Arab entities” sold. In the daily records, foreigners though sold 500mn $ in Monday and bought the same amount the following day !
· In that game, I guess primary dealers and large local names, primarily National Bank of Egypt, are happy to take the spread. As one treasurer commented years ago, money is made when offshore investors are exiting in panic, wider spreads.
· Auctions, due to Easter weekend, Egypt will be closed Sunday and Monday, all the auctions normally on Thursday ( 364 and 182 days) and Sunday ( 91 and 273 days) were packed this week 16th and 17th of April.
· Tricky as the CBE had its MPC meeting yesterday amid general expectations for a moderate rate cut.
· The cover ratio was below last week’s auctions as shown in the table below but still relatively decent with yields more or less in line.
· Two different views : one by settlement date and the other by tenor auctioned.
· Never too late : it seems that whenever the CBE is making some important announcements or big events happening , they deliver a batch of reports. This one, much anticipated, the Monthly Statistical Bulletin , 333, 334 & 335 at the same time. So now, we have fresh data until the end of January 2025.
· The total outstanding balance of treasury bills has grown by 8.5 % to 4256 bn EGP (85 n $) .
· Offshore investors’ share has peaked at 47.74 % in October and is now 41.70 % in nominal terms, before the collateral.
· In notional amounts, the peak was at 1870bn in October, dropped to 1612 bn in December to bounce back in January to 1774bn ( 35 bn $).
· Of which 9967 bn are collateral (contingent liabilities) under external financing operations.
· The peak in bills held as collateral was at 21 bn $ in November and has now eased to 19 bn $.
· Resulting from this, the net open position of offshore investors is 15.4 bn in January $ down from 18.7bn $ in October. So net share for offshore investors at 18 %.
· EGX reports show that if we put together “ foreigners “ and “arab” investors, they bought a net of 48bn EGP from February to now. So not much of a change.
· Most of the slack has been taken by Private sector banks ( +20 % from October to January ) and by Public sector banks ( +114 % ).
Now the best for the end, at yesterday's MPC meeting, the CBE reduced rates by 225 bps putting the discount rate at 25.50 % and the deposit /lending rates in a 25/26 % corridor.
The communique cites uncertainties surrounding the economic outlook, global trade developments that can dampen the outlook and disrupt supply chains. As a result, oil prices have been declining but agricultural commodities have shown high volatility and inflation remains vulnerable to upside risks. Data suggests a sustained recovery in 2025 but there is still an output gap that should also contribute to support disinflation.
Inflation has come down significantly thanks to base effect but non-food inflation is still showing relative downward stickiness.
In view of all elements, the MPC judged that a 225 bps rate cut was an appropriate decision with the aim of “ anchoring inflation expectations and safeguarding the disinflation path”. “ The committee will continue to assess the situation and decisions will continue to be a function of the forecast trajectory “.
Let’s remind again that the official target is 7 % +/- 2 %.
· That rate cut was slightly larger than most forecasts ; we were looking for 0 to 200 bps.
· It comes in a rather challenging context that can change at any moment in any direction.
· Egypt’s Foreign Exchange markets had stabilized somehow this week after previous.
· That rate cut still leave real rates around 12 %.
· Again, I think investors’ appetite is more a function of the global environment and the risk-off mood than the level of rates.
· We could see the front end of the curve falling more rapidly than the longer end : better buy short term paper in this context than going too far out.
· Despite the clouds, that carry still looks good for now.
Thank you
DC