Steady as she goes: The Central Bank of Egypt (CBE) left interest rates unchanged on Thursday, with the Monetary Policy Committee (MPC) citing its commitment to sustaining the current trajectory of inflation moderation, in a statement (pdf).

Where rates stand: The overnight deposit rate remains at 27.25%, the overnight lending rate at 28.25%, and the main operation and discount rates at 27.75%.

Remember: The committee delivered a jumbo 600 bps rate hike following a surprise monetary policy meeting in March, which coincided with the float of the EGP and the securing of an expanded package from the IMF. The CBE left interest rates unchanged at its last meeting in May.

Inflation continues to cool while growth takes a (tiny) dip: The MPC noted that inflationary pressures have continued to recede, with annual urban headline inflation declining for the fourth consecutive month to a17-month low of 27.5% in June, down from 28.1% in May. The committee also pointed to a 0.1 percentage point decrease in real GDP growth to 2.2% in 1Q 2024, adding that leading economic indicators suggest that economic activity in 2Q 2024 “remains subdued.”

In line with expectations: The CBE's decision was correctly forecasted by all 13 analysts and economists included in our interest rate poll. Those surveyed argued that it was still too early for rate cuts, with most expecting easing to begin in late 2024 or early 2025.

Inflation outlook: The MPC sees inflation stabilizing around current levels in 2024, with a significant decline expected in the first half 2025 “due to the cumulative impact of monetary policy tightening and favorable base effects.” However, the committee noted upside risks, including “an escalation of current geopolitical tensions, unfavorable climate conditions, both domestically and globally, and higher than anticipated fiscal measures.”

Fuel and electricity hikes to keep inflation sticky: The new government “plans to further increase administered prices, especially fuel and electricity, to reduce the subsidy bill and remain compliant with the IMF program,” said Ramona Moubarak, Fitch Solutions' director of MENA country risk, suggesting that “this will keep inflation sticky in the coming months, especially from September onwards when the authorities plan to increase electricity tariffs and the seasonal adjustment to education prices takes place.”

Any rate cuts now will hurt the EGP: Moubarak believes that the Madbouly government is focused on supporting the exchange rate at the moment, ruling out a rate cut in the near future, as “a cut in the rates at this time, when the market is not expecting it, might cause some pressure on the EGP.”

But that could change if the gov’t opts to support economic activity: “There is a risk that the authorities would choose to prioritize supporting economic activity and start cutting rates earlier than we currently expect,” Moubarak noted. However, there are clear signals that the CBE will stick to its stringent policy for a longer period, first indicated by its pulling of tns of EGP of liquidity from the banking system over the past few weeks, EG Bank board member Mohamed Abdel Aal told Enterprise. He pointed to June’s Purchasing Managers Index readings — which saw Egypt nearly edge into growth for the first time in over three years — as a reassuring sign with regard to economic growth.

What's next? The committee’s statement stressed that future interest rate decisions will be guided by inflation expectations, suggesting the CBE is not afraid to keep things tight if that's what it takes to bring inflation to heel in the medium term. The MPC’s next meeting is scheduled for 5 September.

The story was picked by Bloomberg.

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