The Central Bank of Egypt surprised markets on Thursday after its MPC voted in favour of leaving its lending rate unchanged at 12.25 percent and its deposit rate at 11.25 percent. The MPC said in its statement accompanying the rate decision that “keeping policy rates unchanged remains consistent with achieving price stability over the medium term”, while taking note of its policy rate hikes in previous meetings. The CBE’s decision provided a fresh tailwind for Egyptian eurobonds. For context, the 2026 eurobond yield shed 59bp on Thursday to close the session at 12.22 percent — its lowest level in two months. Looking at the shape of the curve, after temporarily inverting at the end of last month, there has been a considerable steepening bias present as traders reprice for a less aggressive interest rate path amid mounting growth concerns and easing external price pressures.
Meanwhile, data from the Central Agency for Public Mobilization and Statistics showed that Egypt’s trade deficit narrowed in May. Specifically, the trade deficit fell by 35.8 percent to US$2.61bn in May 2022, compared to US$4.06bn in the same month of 2021. A breakdown of the data showed that the narrowing resulted from an increase in outbound shipments and a fall in imports. Exports jumped 18.3 percent y/y to US$4.01bn in May amid an increase in the value of exports, including petroleum and natural gas products, crude oil, fertilizers, and ready-made clothing. Meanwhile, the value of imports amounted to US$6.62bn in May, falling by 11 percent from US$7.45bn in the corresponding month in 2021. While the trade balance reading improved, the account remains in deficit territory, which will detract from the current account and, by extension, the currency.