CBE holds interest rates steady for the seventh consecutive meeting

CBE keeps interest rates unchanged during its first meeting of the year: The Central Bank of Egypt’s Monetary Policy Committee (MPC) decided to keep interest rates unchanged when it held its first meeting of the year on Thursday. The move marks the seventh consecutive meeting where the committee decided to keep rates as they are.

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The why: The MPC deemed that “the current policy rates are appropriate to maintain a sufficiently tight monetary stance. This will ensure the realization of the projected disinflation path, and firmly anchor inflation expectations. Accordingly, the Committee’s decisions regarding the appropriate time for beginning the accommodative cycle will be assessed on a meeting-by-meeting basis,” it said in a statement (pdf).

Where interest 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 accompanied by the float of the EGP and the approval of a larger loan package from the IMF.

Inflation in focus amid Trump’s trade war, geopolitical tensions: The committee said that annual inflation “experienced a slower pace of deceleration throughout the second half of 2024 compared to the first half.” Food inflation continues to decelerate into 2025 but non-food inflation “remains sticky.” Risks to the current inflation outlook are bigger this time around — courtesy of US President Donald Trump’s protectionist trade policies and geopolitical tensions in the region.

REMEMBER- Annual headline urban inflation dipped to 24.0% in January, marking a marginal 0.1 percentage point drop from December. The figure marks the nation’s lowest inflation reading since December 2022 when inflation recorded 21.3%, which marked the beginning of an upward trend that has been slowing down for three consecutive months. The central bank decided to extend its inflation targets last December to an average of 7% ±2 percentage points by 4Q 2026 and 5% ±2 percentage points by 4Q 2028.

Analysts were divided over which way the MPC will lean: Out of the nine analysts we surveyed for our customary interest rate poll, only three saw the MPC keeping rates steady. Four analysts had penciled in a rate cut, while the remaining two saw the committee leaning either way.

Why were analysts expecting a cut? While the MPC’s decision indicates “deliberate caution in the face of global and regional uncertainties” and “aligns with efforts to anchor inflation expectation,” it raised concerns that the central bank can’t pick “the optimal moment” to start cutting rates, said economist Mona Bedair. Analysts projected a rate cut because “headline inflation is projected to drop significantly in 1Q 2025” and “major central banks, including the Fed, have begun cutting rates,” according to Bedair, who explained that “delaying action could narrow Egypt’s window to attract capital inflows.”

Why the cautious stance? Although inflation is decelerating, “non-food inflation remains elevated (25.5%), making the CBE wary of premature cuts,” said Bedair. Furthermore, the uncertainty brought by Trump’s trade policies and the ongoing geopolitical tensions “adds layers of risk, reinforcing a cautious stance.”

The bottom line: “While monetary easing is inevitable, delaying too long may force a sharper rate adjustment later, increasing economic strain,” Bedair warned, adding that “a gradual 100-200 bps cut would have balanced inflation control with economic support.” Bedair also cautioned that “keeping rates high for too long could slow recovery, suppress investment, and unnecessarily increase borrowing costs.”

A rate cut is becoming a necessity for the economy: “An interest rate cut is necessary to counter the stagflation [Egypt is] almost experiencing, encourage investment, localize industry, increase employment, boost tax revenues to reduce the budget deficit, promote exports, and repay debts,” economist Hany Tawfik said on Thursday before the MPC announced its decision.

It seems the easing cycle is looming in the horizon: “The CBE’s statement echoed our long held view that the headline inflation rate will slow significantly over the coming months as earlier falls in the EGP fall out of the annual price comparison. Indeed, we expect inflation to fall back to single digits in March,” Capital Economics’ Senior MENA Economist James Swanston said in a note seen by EnterpriseAM. Swanston sees policymakers cutting interest rates when they meet in April. “We are forecasting a total of 1600 bps of rate cuts this year, taking the overnight deposit rate to 11.25%, which is much lower than the consensus forecast of 15.00%.”