CBE says single-digit inflation unlikely till 2H 2027 as war reshapes outlook

Pause for thought: The Central Bank of Egypt’s 1Q 2026 Monetary Policy Report(pdf) paints a more cautious picture of the economy as escalating regional conflict reshapes inflation expectations and weighs on growth. Here are the takeaways.

War rewrites the rate path

Let’s wait and see: The CBE held rates at its April meeting, effectively pausing its easing cycle after a cumulative 825 bps in cuts since April 2025. The bank has adopted a “wait-and-see approach” to ensure policy stays restrictive enough to anchor inflation expectations while maintaining a positive real interest rate margin.

Disinflation is off track. The US-Iran conflict has significantly altered the global and domestic outlook. The energy shock “disrupted the relative stability inflation had seen recently and slowed down its downward path,” the CBE says in the report. Brent crude briefly crossed USD 100 / bbl in mid-March for the first time in over four years.

The two big revisions

Sharp rise in revised inflation outlook: The CBE now sees headline inflation averaging 16-17% in 2026 — well above the 11% projected in the 4Q 2025 report — and 12-13% in 2027. Inflation will stay above the 7% (±2%) target range through 4Q 2026, and single-digit prints are no longer expected before 2H 2027.

Growth is losing momentum. GDP growth is now projected at 4.9% in FY 2025/26 (down from a previous forecast of 5.1%) and 4.8% in FY 2026/27 (from 5.5%), with the downgrade primarily driven by lower expected contributions from tourism and the Suez Canal. The bank has pushed back its Suez recovery timeline to 1Q 2027 from 3Q 2026.

Two things going right

Buffers are working. Remittances from Egyptians working abroad hit a record USD 11.3 bn in 4Q 2025, up 29% y-o-y, and net foreign reserves climbed to USD 52.8 bn by end-March 2026 — leaving us entering the shock of war repercussions with stronger external buffers than in previous crises, the CBE writes.

The rate cuts are reaching the banking system. Around 96% of the CBE's cumulative cuts since April 2025 have flowed through to interbank lending rates, which are the rates banks charge each other. Rate cuts are the first stop on the way to cheaper credit for businesses and households. High transmission means the easing cycle is working as designed — low transmission would mean the cuts were stuck somewhere in the system.

Our take

Higher for longer is now the operating frame. The CBE reiterated its commitment to restoring price stability but warned inflation risks will remain heightened if regional tensions persist.