CBE leaves interest rates unchanged following October uptick in inflation

The Central Bank of Egypt’s Monetary Policy Committee left interest rates unchanged during its seventh meeting of the year last Thursday, according to a statement(pdf). The overnight deposit rate stands at 21.00%, the lending rate at 22.00%, and the main operation and discount rates at 21.50%.

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The decision “reflects the committee’s updated assessment of inflation dynamics and outlook since the previous MPC meeting,” the central bank committee said. It noted that both headline and core inflation accelerated — particularly the monthly readings. The committee added that the decision is intended to contain inflationary pressures, guide inflation back to a downward trajectory, and anchor expectations.

Not all analysts polled by EnterpriseAM last week predicted the move, with five out of the eleven we spoke to forecasting a hold, while four predicted a 50-100 bps cut. Deutsche Bank said it anticipated the move given the recent pickup in both headline and core inflation and the likely pass-through from the mid-October fuel price hike, which they said justified a wait-and-see approach, according to a statement from the lender seen by EnterpriseAM. Economist Ali Metwally said the decision was “completely aligned with the macro signals we’ve been seeing in recent months,” arguing that the CBE is prioritizing stability after several rounds of easing earlier this year.

REMEMBER- Annual urban inflation rate rose 0.8 percentage points in October to 12.5%, driven mainly by higher fuel, food, and beverage prices.

The CBE expects inflation to continue rising through the remainder of the year amid higher energy prices, before easing in the second half of 2026 to meet its 7% (±2 pp) target by year-end. The bank flagged risks to the outlook from both global and local factors, including higher-than-expected fiscal adjustments, persistent services inflation, and heightened geopolitical tensions.

Analysts seem to mostly agree. Capital Economics expects inflation to average 13% y-o-y in 4Q 2025. Beltone Holding’s Head of Research Ahmed Hafez sees headline inflation rising to 14% in November and December, reflecting higher fuel prices and a potential VAT hike on cigarettes. Meanwhile, EFG Hermes’ Mohamed Abu Basha sees inflation coming in at 14.1% this month before edging up to 14.3%, noting that rent adjustments could push it higher.

By the end of 2026, CI Capital expects inflation to fall to 9% as fiscal, monetary, and external conditions improve, allowing Egypt to hit the upper end of the CBE’s target range. Deutsche Bank projects average inflation at 12.3% next year, saying this could help maintain attractive real interest rates amid modest fiscal progress, the continuation of the state privatization program, and resumed IMF disbursements.

But Deutsche Bank cautioned that achieving the 7% (±2 pp) inflation target by 4Q 2026 remains at risk due to potential FX pressures from volatile capital flows, geopolitical instability, and emerging market outflows. Global food price shocks driven by climate change could also pose a risk, though local food price volatility — particularly in fruit and vegetables — could help pull inflation lower than currently expected. Deutsche Bank added that stronger growth momentum — estimated at 5.2% in 3Q FY 2025-26 — gives the CBE room to prioritize price stability and assess its stance on a meeting-by-meeting basis.

Most analysts still expect rates to fall before the end of the year. Hafez sees a 100-150 bps cut by year-end, while Capital Economics’ James Swanston expects a 100 bps cut in December. Both Abu Basha and Al Ahly Pharos’ Head of Research Hany Genena see scope for a 100-200 bps cut in December. Metwally expects “the easing cycle to resume, but gradually, once the inflation path becomes clearer and the impact of the upcoming energy price adjustments is fully absorbed.” Deutsche Bank, however, said there is an increasing chance that the CBE could keep rates on hold again in December if inflationary pressures persist, particularly from ongoing fiscal consolidation measures.

The easing cycle is expected to pick up again in 2026, with CI Capital and Deutsche Bank both forecasting 600 bps of rate cuts during 2026. Swanston forecasts a steeper cumulative reduction of 800 bps next year.