KEY THEMES
Last Thursday’s decision by the Monetary Policy Committee of the Central Bank of Egypt (CBE) to cut interest rates by 50bps was a surprise to most market participants, us included. However, to us the surprise was not much whether the CBE will cut rates or not going forward, but it was rather the timing, noting that there remain two more MPC meetings before year-end. The magnitude of the rate cut, however, may reflect the CBE’s inclination to make at least one more rate cut (another 50bps perhaps) before year-end.
At a time when other central banks are tightening to fend off inflation (the Central Bank of Turkey for instance which hiked rates by 200bps on Thursday), the CBE continues on its easing path. The picture in Egypt is different nowadays with low single-digit inflation rates that are well within the CBE’s target range. Also, Egypt’s positive economic growth, which is the highest in the MENA region, needs to be sustained by stimulating corporate credit growth. While the latest decision by state-owned banks to flatten their deposit yield curve has no direct bearing on the CBE’s policy rates, we continue to believe that it is all best for the Egyptian banking sector: lower cost of funds and eventually higher volume growth, thanks to the CBE’s Thursday rate cut.
POSITIVE
Banks: We reiterate our positive call on Egypt banks in general, most notably those with net short-term liabilities, such as Commercial International Bank – Egypt [COMI], QNB Al-Ahli [QNBA], Credit Agricole Egypt [CIEB], and Al-Baraka Bank Egypt [SAUD].