CBE holds rates a third time as monthly inflation turns negative

The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) held its key policy rates for a third straight meeting on Thursday, keeping the overnight deposit rate at 19.00%, the overnight lending rate at 20.00%, and the main operation rate at 19.50%, according to the CBE’s statement (pdf).

The number that made the call easy: Monthly headline inflation didn’t just slow — it went negative, falling 0.4% m-o-m in urban Egypt in June, according to Capmas data. Annual headline eased for a third consecutive month to 14.3% y-o-y, down from 14.6% in May and 14.9% in April. That came in below the Reuters median forecast of 15.1%. The CBE framed the decision as reflecting “better-than-expected macroeconomic developments” since May. Core inflation told a subtler story, ticking up to 14.3% y-o-y on what the bank called “an unfavorable base effect” even as monthly core decelerated to 0.3%.

Cheaper food did the work. Food and non-alcoholic beverages fell 3.2% m-o-m in urban areas, led by a 12.1% m-o-m drop in vegetables and a 14.0% m-o-m fall in poultry. Eggs were down 10.3% m-o-m and 18.0% y-o-y. HC Securities’ Heba Monir tells EnterpriseAM the pullback was driven mainly by lower vegetable and poultry prices, with meat down 5.2% m-o-m and dairy down 2% — a decline that ran deeper than she had penciled in.

REMEMBER– Eleven analysts unanimously predicted the bank would stick to a wait-and-see stance to keep inflation expectations anchored as the market weighs the risk of further subsidy cuts and higher-for-longer global rates in our monthly EnterpriseAM poll.

The base-effect warning. Several analysts flagged the same risk going into the meeting — the disinflation is about to hit a wall. “Despite our estimates of relatively contained monthly pressures in June and July, we believe annual headline inflation could accelerate to 16-17% in the coming two months on the back of unfavorable base effects,” Beltone Financial’s Ahmed Hafez told us ahead of the decision. He warned that another fuel or electricity hike could push inflation toward 18% and “trigger a policy response” — potentially a 100-bps hike in 3Q 2026. Economic analyst Ehab Saied expects the disinflation trend to reverse by August, making it “difficult for the CBE to resume monetary easing.”

The rate math still works. Thndr’s Esraa Ahmed reads the June numbers as more stable than the deceleration suggests, with the main disinflation drivers “not necessarily sustainable.” But she argues real rates near 5% leave the CBE comfortable — contained enough to hold demand-side pressure down while keeping treasuries attractive — which is what makes standing pat defensible rather than merely cautious.

Not everyone framed the risk as inflationary. Ahly Pharos’ Hany Genena argued ahead of the decision that the real dynamic is a demand-supply standoff turning disinflationary — with oil down from near USD 80 to just over USD 60 a barrel, “the pressures that were inflationary two months ago have now clearly turned into deflationary pressures.” Producers who bought expensive inventory in April and May are now stuck facing sharp price drops, he told us, while consumers are holding off purchases in anticipation of further declines. Rather than cut the corridor, Genena expected the CBE to trim the reserve requirement ratio by 2-4 percentage points to ease bank liquidity.

On growth, the CBE’s nowcast points to “a mild deceleration” in 2Q 2026 GDP, “reflecting the adverse impact of the regional conflict on economic activity,” after a moderation to 5.0% in 1Q. The bank still sees FY 2025/26 growth averaging around 5.0%, with output converging to potential by 1H 2027 — a path it says should keep “demand-driven inflationary pressures… limited in the short term.”

What’s next: The CBE expects headline inflation to accelerate through 3Q 2026, “albeit at a more moderate pace than projected at the May 2026 MPC meeting,” before easing back to single digits and hitting its 7% (±2 percentage points) target in 2H 2027. It named “the resurgence of conflict” as the main risk to that path, and reiterated that the MPC “will not hesitate to tighten policy further” if the trajectory shifts.