The Central Bank of Egypt (CBE) is expected to leave interest rates unchanged when it meets on Thursday as inflation continues to ease, according to our interest rate poll. All 13 of the analysts and economists we surveyed see the Monetary Policy Committee (MPC) holding rates steady.

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Where rates currently stand: The overnight deposit rate stands at 27.25%, the overnight lending rate at 28.25%, and the main operation and disc. rates at 27.75%. The MPC delivered a jumbo 600 bps rate hike following a surprise monetary policy meeting in March, which coincided with the float of the EGP and a bigger package from the IMF. The central bank left rates unchanged when it last met in May, citing a slowdown in growth rates and cooling inflation.

The rationale: “June’s inflation figures were more positive than anticipated. We expected the impact of subsidized bread price hikes to be harsher,” Al Ahly Pharos analyst Esraa Ahmed told Enterprise.

Remember: Annual headline inflation cooled for the fourth consecutive month in June, hitting a 17-month low of27.5% in urban areas, down from 28.1% in May. This came despite fears of renewed inflationary pressures following a historic increase in subsidized bread prices.

If inflation data is so positive, why a hold and not a cut? “Although inflation has decreased, it remains relatively high,” Esraa said. The CBE is likely waiting to see further slowdown in inflation rates as it “monitors the impact of expected subsidy cuts on fuel and electricity in the short term,” EFG Hermes chief economist Mohamed Abu Basha told us. CI Capital’s Sara Saada expects inflation to fall within the CBE’s target of 7% (±2%) in 1H 2025.

Apart from inflation, recent positive shifts in remittances and foreign investments in debt instruments, following the landmark Ras El Hekma agreement and commitments from international partners — the IMF, the EU, and the World Bank — support the case for keeping rates unchanged, according to Zilla Capital’s Aya Zoheir. “I believe this momentum will continue as international rating agencies improve their outlook on the Egyptian economy,” Zohair told Enterprise.

Not the right time for rate cuts yet: Most of the analysts we spoke to see the CBE easing monetary policy in late 2024 or early 2025. “Our base case is for the CBE to start the easing cycle in 2025, but we don't rule out a rate cut in 4Q 2024,” Ahmed Hafez, Beltone Holding’s head of research, told us. “We’re penciling in a 700-bps cut in 2025, but there could be room for more aggressive easing up to 10 percentage points,” Hafez added.

What would push the CBE to start cutting rates? Economist Hany Abou El Fotouh outlined several factors that could influence the CBE’s decision to start cutting interest rates — should inflation continue to ease and the exchange rate remains stable — global interest rates, commodity prices, and economic growth. “A decrease in global interest rates may encourage the central bank to cut rates as well,” he told Enterprise, adding that stable or dropping global commodity prices could also alleviate inflationary pressures, further pushing the central bank towards the path to monetary easing. Meanwhile, strong economic growth will translate to more Egyptian exports.

Also playing a role: Domestic factors such as “government spending, taxes, and structural reforms affect inflation and economic expectations, indirectly influencing the central bank's decision on interest rates,” Abo El Fotouh explained.

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