Most analysts see the MPC holding rates this week: A slim majority of analysts surveyed by EnterpriseAM expect the Central Bank of Egypt to hold interest rates when its Monetary Policy Committee (MPC) meets on Thursday. Five of the experts we spoke to see the committee pausing its easing cycle this week, while three others expect a cut between 100-175 bps.

REMEMBER- The CBE cut interest rates by 100 bps in its third meeting of the year back in May. The move marked the MPC’s second consecutive change to the policy rates since March 2024, following seven consecutive meetings where rates were held steady. It is also the bank’s second rate cut since November 2020.

Where rates currently stand: The overnight deposit rate stands at 24.00%, the overnight lending rate at 25.00%, and the main operation and disc. rates at 24.50%.

Both scenarios are possible, but a hold is the most probable: “There is an 80% probability that the CBE will keep interest rates unchanged during its upcoming meeting, and a 20% possibility of a 100 bps cut if the decline in USD (against EGP) helps to balance inflation,” Ahly Pharos Head of Research Hany Genena told EnterpriseAM. The inflation outlook is “positive”, Genena added, noting that the geopolitical tensions’ impact has already receded after the conflict came to a halt. However, the CBE is likely to cut interest rates by around 200 bps during its meeting in August, Genena said. Thndr Securities Brokerage’s Amr El Alfy similarly sees the CBE keeping rates unchanged, before cutting rates by 100 bps when it meets in August.

“The most likely scenario for the upcoming meeting is to maintain interest rates, not because of the lack of desire for stimulus, but because maintaining financial stability and the investment climate has become a priority,” banking expert Hany Abou El Fotouh told us. Any move — be it cutting or raising rates — might be premature now and could confuse the market more than it helps, Abou El Fotouh added. HC Securities’ Heba Mounir agreed with this notion, saying that “based on our expectation of domestic inflationary pressures, geopolitical tensions, and tariff threats in July, we expect the MPC to maintain policy rates at its upcoming meeting.”

However, the outlook for oil prices — a highly influential factor for inflation in Egypt — is negative, due to oil production surpluses in Saudi Arabia and the UAE, Genena said. In addition, oil prices are under “severe pressure”, Genena noted, with Brent crude now priced at USD 65.95 per barrel, after having hit USD 75 per barrel during the past two weeks.

Our carry trade remains attractive: “The latest one-year t-bills auction of 24.8% implies a positive yield of 5.2% using our 12M inflation estimate of 16.0% (after deducting a 15% tax rate for European and US investors),” Monir told us. The average required rate of return by foreign investors on the 12M t-bills declined to 27.2% from 28.0% in May. This suggests that “Egypt’s carry trade remains attractive, especially considering further rate cuts by other developed economies,” according to Monir.

Other analysts anticipate a cut: “We are forecasting for the CBE to cut interest rates by 100 bps, taking the overnight deposit rate to 23.00%, at the meeting in July,” Capital Economics’ James Swanston told EnterpriseAM. Swanston added that “the global backdrop with conflict has subsided that will remove that risk and real interest rates remain significantly positive to reduce interest rates, despite the uptick in inflation in May’s data”.

Easing price pressures and geopolitical tensions could create the conditions for a cut: “In light of the relative easing in prices and the stable situation in the region, we might see a cut, even if a slight one — around 100 bps,” Beltone’s Ahmed Hafez told us. These factors, coupled with exchange rate stability, signs of growth in most macroeconomic indicators, and a drop in unemployment and increased job creation are indicators that — if present — would likely prompt the MPC to extend its monetary easing cycle, banking expert Mohamed Abdel Aal told us, penciling in a prediction of a cut of between 100-175 bps.

As for inflation: Abdel Aal expects June’s inflation reading to slow down to 16.2%, which he attributed to the absence of new, influential, or sustained inflationary pressures. Meanwhile, Hafez expects an inflation reading to drop to around 15.5% — a prediction that he bases on preliminary readings for food prices for June.

REMEMBER- Annual headline urban inflation rose for the third month running in May to 16.8%, up from the 13.9% recorded in April. On a monthly basis, inflation rose 0.6 percentage points to 1.9%. The reading was driven by a rise in food and beverage price inflation, which rose by 11.0% y-o-y.

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