A larger-than-expected dip in the annual inflation rate for November is raising expectations of one more interest rate cut for the year when the Central Bank of Egypt’s Monetary Policy Committee (MPC) meets on Thursday for its final gathering of the year. The CBE left interest rates unchanged during in November, part of an on-again, off-again easing cycle it started in April.

The consensus: 12 out of the 14 economists and banking experts we spoke to expect to see a 100-200 bps rate cut on Thursday, adding to 525 bps of rate cuts delivered throughout 2025. The majority of those we polled expect the CBE to opt for a 100 bps cut. The overnight deposit rate is currently at 21.00%, the overnight lending rate at 22.00%, and the main operation and disc. rates at 21.50%.

Inflation is increasingly under control

We’re entering 2026 with inflation approaching the CBE’s target of 7% (±2%) by the end of 2026. Annual urban inflation eased 0.2 percentage points in November, broadly defying expectations to end the month at 12.3%. A drop in food and beverage prices — down 2.6% on a monthly basis — unexpectedly offset a rise in fuel prices. That “positive surprise” indicated that the impact of fuel price hikes on overall inflation was limited, supporting the central bank’s ability to proceed with a rate cut, our friend Mohamed Abu Basha from EFG Hermes told us.

Seasonal demand pressures are already behind us, with the bulk of purchasing and imports for Ramadan already secured as of a month ago and all logistical and financial arrangements for year-end book closing also wrapped, former Banque Misr Vice Chairman Sahar Al Damati told us. Closing out Ramadan-related demand pressure early, combined with the EGP’s 7% YTD appreciation against the USD, provides the CBE with greater flexibility to cut interest rates by 1-2% this week, Damati said.

Manufacturers would welcome a rate cut

High real interest rates — the nominal interest rate minus the rate of inflation — mean the CBE has significant breathing room to cut rates without sending prices up, several analysts said. The margin on real interest rates stands at about 9%, which “allows the central bank to favor investment and growth through easing while still maintaining a restrictive enough stance to combat inflation,” Thndr’s Esraa Ahmed told us. This margin also creates room to lower rates to support economic activity by reducing borrowing costs for private sector companies, while reducing the government’s debt burden, economist Hany Abou El Fotouh said.

Not a silver bullet, but an important step: “The full effects of repeated interest rate cuts are not immediate, but emerge over time as companies benefit from lower financing costs. This reduction in the financial burden on production allows firms to either become more competitive by lowering prices or absorb some energy cost increases instead of fully passing them on to consumers,” veteran banker Mohammed Abdel Aal explains.

The carry trade factor

Falling US rates mean that the yield spread between the EGP and the USD remains attractive to carry traders even if Egypt brings down its rates, Abdel Aaal said. Even with a cut, Egypt’s carry trade will remain attractive to global investors, HC’s Heba Monir agrees, noting that the latest 12-month T-bills (25.3%) imply a positive real interest rate of 10.5% (after taxes), ensuring that the CBE can afford to lower rates to stimulate the domestic economy without triggering capital flight. Monir expects a 150 bps cut this week.

Abou El Fotouh argues that cutting rates too aggressively could make our carry trade less attractive to foreign investors. “If the real rate falls too quickly and is no longer perceived as sufficient by international investors, it could lead to an exit of hot money, threatening the stability of the EGP,” he said.

The 2026 outlook

Will the CBE deliver aggressive rate cuts in 2026? As inflation converges toward the central bank’s target of 7% (±2%) by 4Q 2026, analysts are pricing in deeper cuts over the next 12 months. Folks we spoke with see anywhere between 500-600 bps to as much as 800 bps in cumulative rate cuts in the 12 months to come.

The combination of weakened purchasing power and the pressure of fiscal adjustments has hit a tipping point. “Prices have in fact begun to decline, as we can observe as consumers, amid weakening purchasing power, meaning that demand is no longer able to accommodate further price increases. Administered prices have also largely absorbed these adjustments,” Al Ahly Pharos’ Hany Genena told us.

Significant rate cuts could “help sustain positive real rates in Egypt that could be warranted in the absence of major progress on additional fiscal reforms, privatization of SOEs, and / or completion of pending IMF reviews,” Deutsche Bank’s Samira Kalla said.

Factors that will determine the pace of easing: Planned fiscal consolidation measures, including the pending hikes in electricity and tobacco prices, passing the IMF’s reviews on our progress on structural reforms, will determine the pace and magnitude of next year’s cuts, Kalla said.

Inflation outlook: Inflation is broadly expected to continue its downward trajectory next year, with CI Capital seeing it standing at 9% by the end of 2026. Capital Economics suggests that while we may see some near-term volatility due to seasonal and administered price changes, the long-term trend is firmly on a downward trajectory: “Looking ahead, we think that Egypt’s headline inflation rate will bump around current rates in December and early 2026, although disinflation will kick in by the end of 1Q and inflation will converge toward the upper bound of the CBE’s target range.”

KEY CONTEXT: Debt service easts up almost half of the government’s total expenditure and about 80% of revenues. Every 100 bps cut saves the state budget approximately EGP 70 bn, according to Finance Minister Ahmed Kouchouk.

(** Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

Tags: