As the Central Bank of Egypt (CBE) embarked on its easing cycle, adopting a more flexible monetary policy, analysts believe that there are winners and losers from the CBE decision to cut interest rates.
In its last meeting, the CBE’s Monetary Policy Committee (MPC) cut interest rates by 1%, which means that overnight deposit and lending rates now stand at 17.75% and 18.75% respectively, while the main open market rate will be at 18.25%.
Following the decision, public banks immediately stopped the 20% savings certificates, replacing them with 16% ones.
Cutting interest rates by 1% is not enough to bolster the EGX and its listed companies, commented Abou Bakr Imam, head of research at Prime Holding, noting that an improvement will be seen when interest rates are cut by another 2% or 3%.
He added in a research note that EGX-listed companies with a high debt cost will benefit the most from the CBE decision, citing Ghabbour Group (GB Auto), Ezz Steel, Palm Hills, Talaat Mostafa Group (TMG), Juhayna, and Domty as those with the biggest gains from the rate cut.
Ezz Steel is also likely to benefit most from the easing cycle, with the interest rates cuts expected to positively affect financial performance, particularly in terms of reducing interest on debt, noted Mohamed Magdy, construction materials analyst at Prime Holding, indicating that around 50% of Ezz Steel’s debt is in Egyptian pounds and is estimated at around EGP 24m.
Ezz Steel last reported a 16.3% year-over-year drop in losses to EGP 107m in the third quarter of 2017 on the backdrop of sales growth hitting EGP 127.9m.
In terms of the sectors badly-affected by the rate cuts, the banking sector will see the most negative effects of the CBE decision as banks which have given out loans at higher interest will now see these loans repaid at lower interest, head of research at El Marwa for Securities & Brokerage, Mohamed El-Naggar, wrote in a research note.
The Egyptian food and beverage sector, however, will benefit the most from the rate cuts, according to the analyst.
Meanwhile, Mubasher Financial Services noted in a recent research note that that 11 EGX-listed stocks will benefit from the decision, indicating that along with Ezz Steel, GB Auto, TMG, and Palm Hills, Global Telecom, Citadel Capital, Orange, Elsewedy Electric, Maridive and Oil Services, and Telecom Egypt will see benefits.
The real estate sector will benefit the most from the rate cuts, according to the Mubasher note.