Majority of analysts see CBE continuing its easing cycle this week -EnterpriseAM poll

Most analysts see the MPC cutting rates this week: A slim majority of analysts surveyed by EnterpriseAM expect the Central Bank of Egypt to once again cut interest rates when its Monetary Policy Committee (MPC) meets on Thursday. Five of the eight experts we spoke to see the committee press ahead with its easing cycle, with most penciling in a 100-200 bps cut.

REMEMBER- The CBE cut interest rates by 225 bps in its second meeting of the year back in April. The move marked the MPC’s first change to policy rates since March 2024, following seven consecutive meetings where rates were held steady, and the bank’s first rate cut since November 2020. The decision was supported by cooling inflation in the first quarter of 2025.

Where rates currently stand: The overnight deposit rate now stands at 25.0%, the overnight lending rate at 26.0%, and the main operation and disc. rates at 25.5%.

Not cutting rates could send mixed signals: Last month’s cut signaled a move toward an easing cycle, which, if brought to a halt without a clear justification, could “confuse markets and raise questions about the consistency of the monetary policy direction,” Zilla Capital’s Aya Zoheir told EnterpriseAM.

There is hardly any case for slowing down the easing cycle: “I don’t see the point in postponing the two percentage point rate cut, seeing as inflation will remain close to its current levels until the end of the year,” Ahly Pharos head of research Hany Genena told EnterpriseAM. In that sense, banking expert Mohamed Abdel Aal told us he expects the easing cycle to continue, this time with a 150 bps cut. “Most countries that go from the levels of inflation we experienced over the last few years to the comparatively lower rates we currently hover around tend to move towards monetary easing and gradually move away from tight monetary policy,” Abdel Aal added.

ICYMI- Annual headline urban inflation rose for the second month running in April to hit 13.9%, marking a 0.3 percentage point increase from the 13.6% recorded in March. On a monthly basis, inflation eased by 0.3 percentage points to 1.3%.

“The latest inflation data showed a noticeable deceleration, with projections indicating that average annual inflation could decline to around 15% in 2025, compared to 28.3% in 2024,” economist Ali Metwally told us. While this could give policymakers greater room to maneuver, the CBE will also take into account external risk factors, particularly those related to USD liquidity and currency pressures, Metwally said. “If the improvement in foreign investment inflows — boosted by the agreement with the IMF and Gulf countries — continues, we may see a gradual interest rate cut during the second half of 2025,” he argued.

But some see current elevated inflation levels keeping an additional cut at bay — at least for this month: “We don’t expect the CBE to cut interest rates in its upcoming meeting. Despite a slight decrease in the inflation rate, its levels are still relatively high,” economist Hany Abou El Fotouh told us. “Additionally, the IMF’s warning against rushing to cut interest rates reflects real concerns about inflation rising once again if monetary easing occurs too early. In my opinion, the most likely scenario is that the MPC keeps rates unchanged to monitor developments and ensure price stability,” he said. Thndr Securities Brokerage’s Amr El Alfy similarly sees the CBE keeping rates unchanged.

The economy could be well-suited to weather the inflationary storm: “Our carry trade is still attractive, and there is a noticeable improvement in the net foreign assets position of the banking sector, facilitating FX liquidity and availability,” HC Securities’ Heba Mounir told EnterpriseAM, adding that she expects the MPC to cut interest rates by 200 bps when it meets this week. The move would help “stimulate economic growth, given a relative stability in the domestic and international economic conditions compared to the previous month,” she said.

There are other factors that could drive a second rate cut by the MPC: Genena told us that “real interest rates approaching 10%, global commodity prices remaining mostly stable, inflation rates remaining under control, the greenback depreciating against the EGP, and Suez Canal revenues coming in higher than expected” are all factors that could lead to a 100-200 bps cut. “This would help boost investments, encourage growth in the private sector to support growth — especially in export sectors — and conserve state funds in the government’s budget,” Genena said.

Cut now, hold later? “We think it seems more plausible for the CBE to cut rates at its next meeting before possibly taking a pause” when the MPC meets in either July or August, EFG Hermes’ Mohamed Abu Basha wrote in a note seen by EnterpriseAM. He added that this could take place given the implementation of upcoming fiscal measures that include adjustments in the VAT rate on a yet-unknown number of goods and services, as well as upcoming fuel price hikes.