CBE holds rates as regional war derails easing cycle

The Central Bank of Egypt’s Monetary Policy Committee kept interest rates on hold at its meeting on Thursday, pausing the easing cycle in line with analyst expectations, the central bank said in a statement (pdf). The committee kept the overnight deposit rate at 19.00%, the lending rate at 20.00%, and the main operation and reduced rates at 19.50%, noting that the war has triggered a global energy shock and reversed the disinflation trend seen earlier this year.

Hawkish hold: London-based economist Ali Metwally describes the CBE’s decision as a “hawkish hold,” meaning it keeps interest rates high while signaling readiness to raise them if needed. The central bank is explicitly treating the crisis as an external supply shock, as the war disrupts global trade, spikes agricultural and energy prices, and reverses the disinflation trend seen earlier this year, Metwally tells us.

Targets under pressure: The CBE’s 7% (±2 percentage points) inflation target for 4Q 2026 is now highly threatened by a fear-driven spike in global energy costs, particularly in the event of a prolonged conflict. Around 20% of the current high oil prices are strictly a geopolitical “risk premium” that could vanish rapidly if the US-Iran conflict ends, Al Ahly Pharos’ Hany Genena tells us. If the war resolves in April, inflation could cool to 12-13% by the end of the year. However, a prolonged conflict could push inflation past 15%.

Growth outlook trimmed: The CBE revised down its real GDP growth forecast for the current fiscal year to 4.9%, from 5.1% previously, and now expects growth during 1Q 2026 to slow to 4.8-5.0%, compared to 5.3% in 4Q 2025. The moderation is expected to keep output below potential for longer, helping to contain demand-side inflation pressures in the near term.

Shock absorber: The central bank praised the recent depreciation of the EGP as a successful “primary shock absorber.” Genena echoed this, noting that the flexible exchange rate is rapidly restoring export competitiveness and bringing foreign investors back to the market faster than anticipated.

What’s next? The committee has formally adopted a “wait-and-see” approach for future meetings, signaling a potentially prolonged pause on rate cuts. “As long as things are unclear, the MPC will keep rates as they are,” former Banque Misr deputy chair Sahar El Damaty said. The committee may stick with this approach for the rest of the year, if no additional “regional or global surprises” take place, Thndr’s Esraa Ahmed told us.

Future interest rate decisions will be strictly data-driven, with the CBE closely monitoring the “pass-through” effect of the depreciated EGP on local inflation, Metwally noted. The central bank stands ready to tighten policy further if this current inflation wave threatens to turn into a long-term spiral of expectations.