Analysts are divided over whether the MPC will cut rates this week. Some are predicting that the Central Bank of Egypt will cut interest rates by 100-200 basis points (bps) when its Monetary Policy Committee meets on Thursday, with analysts pointing to a strong positive base effect and slowing inflation as factors that could influence the decision. Others believe that the recent inflation data will prompt the bank to wait until the next time the MPC meets in April. Four of the analysts and economists we surveyed see the MPC cutting rates this month, two others said they were 50/50 on the decision, while three more suggested that the committee would hold rates.

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 last March, which was soon followed by the float of the EGP and the approval of a larger loan package from the IMF.

The central bank hasn’t made any changes to interest rates since its March rate hike — leaving them untouched when it met in May, July, September, October, November, and most recently in December.

Inflation continued its downward trajectory in January, albeit at a slower pace: Annual headline urban inflation dipped for a third consecutive month in January, recording 24.0%, down from 24.1% in December, holding steady as the nation’s lowest inflation reading since December 2022. Al Ahly Pharos Senior Economist Esraa Ahmed attributed the stagnancy in the first reading in 2025 partly to higher medical care costs, as well as an uptick in some food items, mainly meat and poultry, which she said “might be linked to seasonal factors.” She added that “some of the pass-through effect of the relatively higher USD since early November might have been finding its way to various prices.”

There’s a lack of agreement on how the inflation figures will factor into the MPC’s decision: Analysts were split over whether the recent figures would be enough to prompt a rate cut from the MPC, as other factors that include continued geopolitical tension and a tightened external position could cause the committee to hold off on cutting rates. “The bank may determine that current inflation rates still necessitate maintaining high interest rates.

It is worth noting that the rapid growth in Egypt’s money supply has contributed to rising inflation, reaching a record high growth rate of 31% in December 2024,” economist Hany Abou El Fotouh told us.

The base effect could create the necessary space for the CBE to begin its easing cycle: While heightened seasonal spending due to the month of Ramadan and education expenses are expected to maintain inflationary pressures in February, “there is a strong positive base effect expected to step in, providing a relatively ample range of positive real interest rate allowing the CBE to start easing,” Ahmed told us. “The CBE might go for cutting rates by 100 – 150 bps in the upcoming meeting,” she added. Meanwhile, economist Mona Bedair sees room for a rate cut by around 100-200 bps, but says it’s more likely for the bank to cut rates 100 bps due to “the slower-than-expected drop in the inflation reading.”

Expectations for this month’s inflation reading could influence the CBE’s decision: February’s inflation reading — which some expect will see a sharp drop on the back of a strong base effect — could prompt the CBE to cut rates this month, National Bank of Kuwait Economic Research’s Noaman Khalid told us, penciling in a prediction of a 200-300 bps rate cut on Thursday.

But there are other factors at play than just inflationary pressures: “Given the tightened external position and the turbulent geopolitical tension and its effect of a potentially delayed recovery of the Suez Canal revenues and the US declaration of potentially displacing Gaza’s residents in several countries, including Egypt, we expect the MPC to leave interest rates unchanged,” HC Securities’ Heba Mounir said. These factors could threaten Egypt’s FX inflows, she said, “considering its external debt dues and energy import bills, creating a need to maintain the attractiveness of the carry trade.”

The stabilization of the EGP’s exchange rate and improvements in balance of payments indicators could be seen as an opportunity for the CBE to lower interest rates without negatively affecting currency stability, Abou El Fotouh said.

Some don’t see the MPC cutting rates until 2Q: Capital Economics is penciling in April for the first rate cut of the year as the most likely scenario, but “isn’t ruling out” a rate cut taking place on Thursday, Capital Economics’ James Swanston previously said in a note seen by EnterpriseAM.

Upcoming wage hikes, subsidy cuts could have a minimal impact on inflationary pressures: “Fuel and electricity price hikes had weighed heavily on households and industries when they coincided with sharp currency devaluations, but before the FX crisis and the EGP devaluations in 2022 and 2023, they had limited impact on inflation,” Khalid explained. However, EGBank board member Mohamed Abdel Aal suggested that the impact of the upcoming social support package, anticipated wage increases, and the rise in the prices of certain goods could still contribute to inflation. On that note, Abdel Aal said he could see the MPC going either way on Thursday, but added that he hopes to see an interest rate cut of 200-300 bps either in the upcoming meeting or in the next one in April.

A rise in real interest rates will curb investments as borrowing costs remain high: The real interest rate will rise from 4% in December 2024 to over 16% in February 2025 if nominal rates remain unchanged — meaning that the rise in real interest rate from February onwards will “act as a brake on the recovery in investment,” BNP Paribas said in a note seen by EnterpriseAM. Despite this, uncertainties over Egypt’s inflation outlook will likely prompt the CBE to remain cautious, causing a more gradual decline in rates across 2025, the bank said.

In the long-term: Beyond their predictions for the CBE’s first rate cut of the year, analysts are divided over just how far the impending easing cycle will go, with uncertainty over the factors affecting Egypt’s economy creating a mixed outlook over how the MPC decides to act. Bedair told us she sees an “8-10% reduction in rates throughout the year, assuming that there are no unexpected circumstances affecting the basket of goods and services used to calculate headline inflation,” while Zilla Capital’s Aya Zoheir sees the CBE cutting rates by 6-8% throughout the year. Meanwhile, Capital Economics sees “a total of 1.6k bps of reductions this year, taking the overnight deposit rate to 11.25%, which is much lower than the consensus forecast of 15.0%,” Swanston said.

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