CBE holds rates for a fourth meeting as inflation risks linger

The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) held interest rates steady for the fourth consecutive meeting on Thursday, keeping the overnight deposit rate at 19.0%, the overnight lending rate at 20.0%, and the main operation and discount rates at 19.5%, according to a statement (pdf). The decision extends the pause that followed February’s 100-bps cut, with policymakers opting to keep the brakes on while they wait for inflation to resume a durable downtrend.

The hold was the safe call, and the expected one: The MPC has now left rates unchanged at four consecutive meetings. July’s annual urban inflation rate accelerated for the first time since March, rising to 14.9% from 14.3% in June, although it did come in below the 15.6% analysts were expecting. With the July electricity cost increase still working its way through consumer prices, there was little reason for the CBE to go for a cut.

The CBE’s own forecast explains the caution: Headline inflation averaged 14.6% in 2Q, slightly below the central bank’s prior 15.0% forecast, but the central bank expects inflation to temporarily pick up in 3Q because of unfavorable base effects before resuming its descent. Under its baseline scenario, the CBE expects inflation to average 16.6% in FY 2026/27, then slow to 8.1% in FY 2027/28 and return to its 7% target range (±2 percentage points) in 2H 2027.

The CBE has more room to wait than it did a few months ago. It has raised its growth forecast to 5.0% for FY 2025/26 and 4.9% for FY 2026/27, citing stronger-than-expected activity, including a recovery in Suez Canal receipts. FX buffers have also held up better than expected: net international reserves reached USD 55.1 bn at the end of June, while the EGP strengthened despite USD 9.5 bn in portfolio outflows. That backdrop gives policymakers less reason to cut rates preemptively to support growth or shore up the currency.

But a stronger external position does not eliminate inflation risk: The CBE estimates that a 1% depreciation of the EGP adds around 0.18 percentage points on average to annual headline inflation over the 12 months following the depreciation. That sensitivity means exchange rate stability remains central to the disinflation path, even as reserves and growth have improved.

What’s next? Geopolitics remains the largest swing factor in the CBE’s outlook. Its inflation projection for FY 2026/27 ranges from 15.2% if regional tensions de-escalate to 17.8% if they intensify, against a 16.6% baseline. Until that range narrows and administered-price increases are fully reflected in inflation data, the MPC’s current “adequately tight” stance looks set to remain the default.

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