The Central Bank of Egypt (CBE) is expected to hold interest rates steady for the third consecutive time when its Monetary Policy Committee (MPC) meets this Thursday, according to an EnterpriseAM poll of 11 analysts and economists. Policymakers are expected to stick to a “wait-and-see” approach, anchoring inflation expectations as the market braces for potential domestic subsidy cuts and global monetary constraints.
The math behind the hold: The consensus is that the overnight deposit rate will stay at 19.00% and the lending rate at 20.00%. While we recently noted that annual urban inflation cooled to 14.6% in May — down from 14.9% in April — the margin for error remains thin. Keeping rates where they are secures a healthy positive real interest rate margin of over 4%, a vital buffer to contain demand-side inflation and keep foreign inflows parked safely in our local debt market.
REMEMBER- The CBE paused its easing cycle at its meeting in May to navigate geopolitical headwinds and contain debt-servicing costs. That stance carries into July MPC after May’s data showed monthly urban price pressures at 1.6%, up from 1.1% in April.
Cooling, for now
“Despite our estimates of relatively contained monthly pressures in June and July, we believe annual headline inflation could accelerate to 16-17% in the coming two months on the back of unfavorable base effects,” Beltone Financial’s Head of Research Ahmed Hafez tells us. Broader electricity tariff increases or another round of fuel price hikes could push inflation toward 18%, he says, “which might trigger a policy response. We are therefore no longer ruling out a 100-bps interest rate hike in 3Q 2026.”
Thndr economist Esraa Ahmed agrees that the upside risk is active, pointing to the potential for another fuel price hike as Brent remains volatile. “Given no foreseeable end to current regional tensions, we believe the CBE will keep rates where they are until further notice.”
Economic analyst Ehab Saied echoes the sentiment. “I expect a hold in the upcoming meeting because the slowdown in inflation is primarily driven by base effects. By August, I expect it to look toward rising again, and therefore it will be difficult for the Central Bank to resume monetary easing, even though it is in dire need of every 1% cut to ease the government debt service burden.”
The deflationary turn
Post-war dynamics are structurally flipping previous supply-side shocks on their head. “The tensions and the war that were pushing prices upward have cooled significantly, which has reflected on global commodity prices, with oil retreating from near USD 80 per barrel to just over USD 60 currently,” Ahly Pharos’ Head of Research Hany Genena tells us. This has trapped producers who bought expensive inventory during April and May, forcing them to face sharp price drops from competitors and devalued stock.
Consumers are also postponing purchases in anticipation of further price cuts, sparking a dual stagnation in demand and supply. “The pressures that were inflationary two months ago have now clearly turned into deflationary pressures,” Genena says. Rather than cutting corridor rates now, he suggests the CBE might eventually trim the reserve requirement ratio (RRR) by 2% to 4% to relieve tight bank liquidity.
AASTMT economics professor Shaimaa Wagieh favors the same cautious route, giving a 70% probability to a hold against a 30% chance of a limited 50-bps cut. “The closest scenario is to fix interest rates during the next meeting, as part of a policy of anticipation and assessing the impact of previous cuts on inflation rates and economic activity,” she says, aligning with the precautionary approach dominating global central banks right now.
The currency cushion
The recent EGP appreciation — dipping below the EGP 50 mark against the USD — has eased immediate macro pressures, driven by a record USD 53.13 bn reserve cushion, robust remittances, and hot money inflows. “The current decline in the USD below the EGP 50 mark has many causes, chief among them the receding intensity of regional geopolitical risks,” London-based economist Ali Metwally tells us. Sustaining those gains, he says, will require continued geopolitical calm, stable energy prices, and the absence of a sudden surge in USD demand.
EFG Hermes’ Head of Macroeconomic Analysis Mohamed Abu Basha also sees little reason for an immediate policy shift, saying that while the US-Iran memorandum of understanding is positive, “uncertainty remains high, and the market will monitor the extent of commitment to the agreement and its effectiveness.” Banking analyst Mohamed Abdel Moneim adds, “I believe the CBE will remain conservative until the outlook clarifies regarding inflation trends, the status of the war, and broader geopolitical developments. The closest scenario is a hold.”
The indirect squeeze
Analysts agree that the CBE’s current policy remains highly restrictive, leaving no room or necessity for premature rate cuts. “The CBE no longer relies solely on raising official interest rates as its exclusive tool to mop up liquidity,” veteran banker and EG Bank board member Mohamed Abdel Aal explains. “During the past period, the CBE allowed public and private banks to proactively deploy high-yield savings instruments, which effectively absorbed a significant portion of liquidity, encouraged EGP savings, limited dollarization, and strengthened the local currency, without the need for an additional direct hike in official policy rates.”
The Fed constraint
The international monetary backdrop remains hawkish under Kevin Warsh. “The US Federal Reserve’s decision to maintain interest rates unchanged within the 3.50-3.75% range adds an external factor of caution that cannot be ignored,” financial analyst Hany Abou El-Fotouh says. “[Keeping] USD rates relatively high makes any rapid cut in interest rates on the EGP more sensitive regarding capital flows and the exchange rate. Therefore, I project a 75% probability for a rate hold.”
Economic analyst Ahmed Shawky likewise expects global rates to remain elevated as the Fed under Warsh’s leadership prioritizes inflation control, underscoring that the US economy is still growing at a strong pace, which preserves pressure on emerging markets to maintain attractive risk premiums to prevent capital flight.
Initially favoring a possible marginal cut, former Banque Misr Deputy Chair Sahar El Damaty ultimately altered her view: “I see that the CBE may resort more to holding again instead of lowering interest rates, especially since our inflation has gone down… the situation now has become difficult, the USD is very strong and will have an impact on our currency in Egypt… and the interest rate must be kept high so we can continue to attract hot money.”
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