Most analysts surveyed by EnterpriseAM see the Central Bank of Egypt continuing its easing cycle this week when its Monetary Policy Committee meets on Thursday for its sixth meeting of the year. Eight out of the 12 economists and banking experts we spoke to forecast a rate cut between 100-200 bps, while the other four participants see the CBE holding rates unchanged.

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REMEMBER- The CBE slashed interest rates by 200 bps in its fifth meeting of the year in August, resuming its easing cycle, which was paused in July after two consecutive cuts totalling 325 bps in April and May. The August cut marked the bank’s third rate cut since November 2020.

Where rates currently stand: The overnight deposit rate now stands at 22.0%, the overnight lending rate at 23.0%, and the main operation and disc. rates at 22.5%. Rates are now down a whole 525 bps since the bank began its easing cycle in April.

Easing inflation has given the CBE the needed room to continue cutting rates, with annual headline urban inflation easing 1.9 percentage points to 12.0% y-o-y in August, most analysts emphasized in their comments to us. The dip brought the country’s headline figure to its lowest reading since March 2022 and marked the third consecutive month of easing price growth, providing further confirmation for many that the country’s broad disinflationary trajectory is here to stay.

Some also pointed to exchange rate stability as a reason why the bank will decide to cut, including economist Hany Hafez told EnterpriseAM that the MPC has a “golden window” as it can capitalize on both “slowing inflation and the stability of the EGP.” EFG Hermes’ Mohamed Abu Basha similarly pointed to “the appreciating EGP, absence of fiscal consolidation measures, and a favourable base effect” as the drivers of a positive trajectory for inflation.

October’s a good time to frontload cuts for the year with upcoming IMF reforms set to add to inflationary pressures later in the year, argues Deutsche Bank. To persuade the Fund to greenlight the combined fifth and sixth reviews of our Extended Fund Facility, upcoming fuel price hikes will result in “additional pass-through to inflation in November and possibly December.”

Despite recent rate cuts, real interest rates are still at historically high levels, Hany Hafez told EnterpriseAM. This gives the CBE a comfortable margin to cut rates without threatening market stability or the attractiveness of our carry trade, he added.

But not everyone agrees that the MPC will decide to cut, including Economics Professor Medhat Nafei and former Industrial Development Bank Chairman Maged Fahmy, who think the CBE will likely hit pause on rate cuts this week. The two see the bank preferring to wait and assess the impact of upcoming price fuel hikes before making a move.

The bank may also keep rates stable “to give the economy enough time to fully absorb August’s 200 bps rate cut,” HC Securities’ Heba Mounir told us. Mounir also pointed to the “anticipated inflationary impact of the USD 1 per mn British thermal units increase in natural gas price to the industrial sector and the upcoming fuel price hikes that will be announced in October,” among her reasons behind her forecast.

If the bank does go for a 200 bps cut, any future cuts this year will be limited, Hany Hafez added. Assuming the CBE does go for the larger cut, the government is expected to closely monitor the inflationary impact of planned energy price increases as the country phases out subsidies under its obligations to the IMF, we were told.

As ever, “the easing cycle will remain gradual and data-dependent,” economist and Kent Business College Business Advisor Ali Metwally said in reference to the CBE’s long-stated approach to the issue. The CBE will continue to balance “inflation risks against the need to support growth and reduce the fiscal burden of high debt servicing,” he added. Under this view, Metwally sees 200-300 bps worth of cuts, including from this week, by the end of the year. Some, including Abu Basha, see the planned fuel price hike pushing the bank to keep rates put in November’s meeting as it assesses the impact.

Some are more bullish in their 2025 forecasts, including Capital Economics’ James Swanston, who thinks the bank could cut rates by a total 400 bps from now until the end of the year. On the assumption that inflation will cool over the remainder of the year to an average 11.0% y-o-y in 4Q, Swanston sees the bank moving to cut rates 200 bps this week before adding two 100 bps cuts in November and December to take the overnight deposit rate to 18.0%.

Those expecting a hold this week have scaled back expectations for cuts to come in the last few months of the year, including Beltone Holding Head of Research Ahmed Hafez who sees room for a further 250 bps worth of cuts in 4Q if it keeps rates stable in its upcoming meeting.

And if inflation speeds up in September’s reading, further rate cuts could be off the table for 2025 — even if the MPC holds rates this week — Nafei said. “If monthly inflation readings show a sharp rebound, this holding pattern could persist until the end of the year,” he said.

The consensus is that inflation may creep up again at some point in 2025, but think it’s no reason to panic, with any uptick in inflationary pressures expected to remain in the 12-14% y-o-y range, Metwally told us. Any uptick in this range will still be well below last year’s peaks, he added.

If inflation does pick up, incoming fuel, energy, and water price hikes will be to blame, Hany Hafez — who also sees inflation concluding 2025 in the 12-14% range — told us. Abu Basha similarly penciled in inflation ending the year at 13-14%, pointing to the expected 15-20% fuel price hike in October.

There’s a risk we’re overestimating the impact of the approaching fuel price hike, as “historical data suggests that fuel price hikes trigger a rise in the monthly inflation rate to nearly 3%” which — even if at the upper estimate of 3.5% — would push the annual headline figure to 13.5% y-o-y, or 14% y-o-y with ripple effects, according to Al Ahly Pharos Head of Research Hany Genena. But after this final hike to end fuel subsidies once and for all, “future hikes would be the usual 10%, less or more, depending on global fuel and oil prices and the exchange rate,” opening up the door to bringing inflation down to more normal levels.

Yet, others think that the inflation rate could weather incoming inflationary pressures, with fuel price hikes potentially absorbed by a dip in the country’s import bill as the EGP strengthens against the USD, EG Bank Board Member Mohamed Abdel Aal told us. Abdel Aal sees headline inflation stabilizing at around 12% y-o-y on average and core inflation at 10% y-o-y on average.

In the short term, many analysts see inflation falling in September, including Deutsche Bank, which sees inflation falling around 1.5 percentage points to 10.5% y-o-y — give or take. Abu Basha also expects inflation to fall again in September, before rising the month after, “when the next — and final — fuel price hike will be implemented.”

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