CBE to stay the course, analysts tell EnterpriseAM: The Central Bank of Egypt (CBE) is expected to leave interest rates unchanged when it meets on Thursday, amid persisting inflationary pressures driven by rising fuel prices as well as continuing geopolitical tensions in the region, according to our interest rate poll. All nine of the analysts and economists we surveyed see the Monetary Policy Committee (MPC) holding rates steady.

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%. Rates have remained unchanged since the committee delivered a 600 bps rate hike following a surprise monetary policy meeting in March in conjunction with the float of the EGP and a larger loan package from the IMF being approved soon after.

If the analysts are right, this would mark the fifth time that the MPC voted to keep rates steady: The central bank hasn’t made any changes to interest rates since its March rate hike — leaving them as is when it met in May, July, September, and most recently in October.

Three consecutive monthly rises in inflation have strengthened calls to keep rates where they are: Annual headline urban inflation rose 0.1 percentage point to 26.5% in October, extending its upward trajectory for a third consecutive month and pushing us further away from the central bank’s average inflation target of 7% (±2%) by 4Q 2024 and 5% (±2%) in 4Q 2026. After having fallen for the fifth consecutive month to a 19-month low of 25.7% in July, headline has since been on the up on the back of a “mix of fiscal measures and consequences of EGP devaluation in March accompanied by a lack of positive base effect during 4Q2024” Al Ahly Pharos analysts Esraa Ahmed said.

We may also be in line for an unwelcome inflationary surprise courtesy of fuel hikes yet to be fully reflected in the data: “November is expected to fully reflect the impact of energy price hikes” that came into effect in the middle of October, HC Securities’ Heba Mounir told EnterpriseAM. This sentiment was echoed by most analysts we surveyed, with some adding rising tobacco prices as another potential factor that could add to inflationary pressures in our next inflationary data set out next month.

But not everyone agrees that we will see inflation rising again in November: Most analysts see inflation accelerating for a fourth straight month in November on the back of the additional price hikes, with economic analyst Dina El Wakkad telling us that she expects inflation to start trending downward starting November.

The consensus is that the central bank will start cutting rates in the first quarter of next year: “A favorable base effect and a more relaxed global monetary environment” points to the likelihood of the central bank starting its rate cut cycle starting in 1Q 2025, El Wakkad said. Ostoul Securities Brokerage’s research head Mohamed Abdel Hakim added that a decision to keep rates where they are could also be driven by a desire to “preserve attractive yields for foreign investments in government debt instruments.”

A rate cut by 1Q 2025 is not set in a stone, however: The decision to cut rates in the first quarter of next year could be postponed once again if the IMF “insists on a tight and harsh ‘economic reforms’ related to fuel prices and/or EGP outlook” and the “escalation of the current ongoing war that poses a threat to energy prices and worsens geopolitics and Egypt’s risk profile,” Ahmed warns.

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