The Central Bank of Egypt (CBE) kept interest rates unchanged on Thursdayas global inflationary pressures begin to ease, it said in a statement (pdf) following its policy meeting. The Monetary Policy Committee (MPC) left the deposit rate at 18.25%, the lending rate at 19.25%, and the main operation and disc. rates at 18.75%.

The rationale: The CBE said it would maintain interest rates as it continues to assess the cumulative impact of previously enacted tightening policies. The central bank has hiked rates by 1k bps since March 2022 but left them unchanged during its latest monetary policy meeting in May. It also increased banks’ reserve ratio requirements by 400 bps in September.

This was expected:Seven ofnineanalysts in our poll predicted the decision, explaining that it would give the CBE time to assess the situation and hold off any moves that may increase the cost of public debt. Seven of ten analysts in a CNBC Arabia poll and all 17 analysts in a Reuters poll also saw policymakers holding rates steady.

Inflation is still running hot: Annual urban inflation rose to 32.7% y-o-y in May from 30.6% the month before. The May reading marks a return to the near record high inflation recorded in March before price hikes briefly cooled in April. Inflation is now once again at its highest since July 2017, when it hit an all-time high of nearly 33%. The central bank is still targeting a 7% (±2) rate of inflation by 4Q 2024 and 5% (±2) by 4Q 2026, the statement said.

Rates may stay on hold as long as the FX rate remains stable: Some of the analysts we spoke to ahead of the CBE decision told us that the central bank would likely only move to raise rates in tandem with another devaluation of the EGP — which many have now ruled out in the short term. Banking expert Mohamed Abdel Aal is among those who say that the FX rate currently has a bigger impact on inflation than interest rates, while central bank governor Hassan Abdalla recently noted that policy moves other than rate hikes may be needed to bring inflation back in line.

The MPC’s next meeting to decide its rate policy is scheduled for Thursday, 3 August.

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