Analysts expect CBE to hold Thursday but consensus cracks

A majority of analysts expect the Central Bank of Egypt (CBE) to keep interest rates on hold at 19% when its Monetary Policy Committee (MPC) meets on Thursday, extending the pause that began in April when the Middle East disruptions derailed the easing cycle. But for the first time in months, the consensus is not unanimous. HC Securities’ Heba Monir is calling for a 100-bps hike, arguing that 4Q inflation pressures leave the CBE with no choice.

Timeline: Since cutting rates by 100 bps in February — the only move this year — the MPC has held steady for four consecutive meetings (April, May, July, and most recently August). The overnight deposit rate currently stands at 19.0% and the lending rate at 20.0%, with the main operation rate at 19.5%.

The case for holding

August urban inflation unexpectedly slowed to 14.5%, undershooting both the 15.5% Reuters consensus of 17 analysts and the CBE’s own guidance of a 3Q pickup. The miss came from a third consecutive monthly decline in food prices (down 1.1% m-o-m), which absorbed the roughly 12% household electricity hike that pushed housing costs up 42.8% y-o-y. Core inflation edged up to 14.9% from 14.7%, suggesting the improvement is concentrated in the volatile food components.

IN CONTEXT- The August figure came in “significantly below” EFG Hermes’ 15.8% projection, the bank’s head of macroeconomic analysis Mohamed Abu Basha told us at the time. He expects a further slowdown in September on favorable base effects but no move from the CBE through year-end, with “rising global oil prices keeping some upside risk.” CI Capital also undershot its forecast on the food decline and flagged that the 1.8% m-o-m rent and housing-cost increase was offset by the food drop. Annual inflation below 15% with two consecutive months of flat monthly readings “supports the CBE’s policy of keeping interest rates unchanged,” the firm said, while monitoring Brent and geopolitics for any inflection.

Morgan Stanley forecasts the disinflation trend continues: 13.2% in September, below 13% from October, and 11.8% by December 2026, the bank said in a recent note (pdf). It expects the CBE to hold through the year-end regardless, arguing that “regional tensions override the space for easing.”

The CBE’s own baseline is less optimistic: Under its baseline scenario, the CBE sees inflation averaging 16.6% in FY 2026/27, slowing to 8.1% in FY 2027/28, with the 7% target returning only in 2H 2027. The outlook for the current FY spans a wider band depending on the conflict’s trajectory: 15.2% in a de-escalation scenario versus 17.8% if tensions intensify.

The IMF’s own projections are slightly more cautious: The Fund expected in July — just after its seventh review clearance — inflation to average 16.7% in 2H 2026, reflecting higher energy prices and exchange rate depreciation, with convergence to the CBE’s target range delayed by about a year.

The global picture

The US Federal Reserve raised rates by 25 bps to 3.75-4.00% last Wednesday, the first hike under new Chair Kevin Warsh, with 16 of 18 policymakers projecting at least one more increase this year and inflation now seen returning to the 2% target only by 2029. The Morgan Stanley report, dated a day after the Fed decision, doesn’t reference it. The report was likely finalized before the Fed’s statement was fully absorbed, but the omission is consistent with Morgan Stanley’s view that the hold call rests on regional risks, not US monetary policy.

The impact on Egypt’s carry trade looks contained. Abu Basha downplays the Fed’s hike because the 500-basis-point real rate buffer insulates local debt. Capital outflows that did happen were “mostly stemming from rising geopolitical risks rather than concerns about US rates,” he tells us. Head of Research at Ahly Pharos Hany Genena agrees, telling EnterpriseAM that “even if the Fed raises rates to 4.25-4.50%, the gap is still very wide in favor of the EGP. There is absolutely no reason to raise rates again.” The corridor rate at 20% against 14.5% inflation gives a 5.5% positive real yield, Genena says.

What breaks the consensus

The benign inflation headline masks pressures building underneath, and the CBE needs to act, HC Securities’ Heba Monir tells us. She expects a 100-bps hike, arguing that 4Q changes the math. “Given our expectation that inflationary pressures will persist in 4Q 2026, and given developed economies’ central banks shifting to tighter monetary policies, we expect the MPC to hike interest rates by 100 bps,” she says.

Her case rests on what’s coming, not what’s already priced. September inflation could hit 1.3% m-o-m, driven by seasonal rent adjustments and the start of the academic year. October could see 2.1% m-o-m, reflecting an expected c. 10% increase in fuel prices as the state cuts subsidies to meet fiscal targets. Oil supply is tightening after Saudi Arabia closed its East-West pipeline, and the Fed and the European Central Bank both raised rates in the same month.

The carry trade remains attractive, Monir acknowledges. After the 15% withholding tax for foreign investors, 364-day T-bills would still yield an estimated 8.35% real return against her 13.3% 12-month inflation forecast.

The CBE’s other tools

The CBE is not limited to moving the corridor rate. In one main-operation auction last week, the central bank pulled EGP 500 bn out of the banking system — a tactical liquidity drain that substitutes for a direct hike, a banking analyst tells us. “The central bank is using indirect, tactical tools instead of directly raising rates. Raising rates cripples credit growth, worsens the domestic debt burden, and deepens the budget deficit,” he argues, noting that net hot money inflows have exceeded USD 1 bn recently, recovering ground lost earlier in the year.

What’s next

The USD is expected to trade within a 49-52 per EGP range through year-end, supported by recovering Suez Canal volumes as ships reroute from Hormuz, tourism at 80% hotel occupancy in the Red Sea, and privatization proceeds from Banque du Caire and Misr Life Ins., Genena says. The 49-52 EGP swing is “very modest for a currency above 50 [EGP],” the banking analyst says.

The wildcard is inventory. Companies’ cheap stockpiles bought before the March shock are “nearing depletion by September,” Genena warns. If the conflict persists alongside higher shipping costs and fuel increases, he flags a potential 4Q inflation spike to 16-16.5%. But even if it does, “holding rates at 20% still gives the central bank a comfortable positive real margin,” he says. “They can let inflation move temporarily within that band without needing to raise rates again.”

OUR TAKE- The CBE still has the headroom. The question heading into Thursday’s meeting — one of three left this year, with 29 October and 17 December to follow — is whether the committee sees reason to use it.