CBE keeps rates on hold but recasts policy guidance in broader terms

The central bank held interest rates steady for a fifth consecutive meeting, but its guidance language has changed. The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) met on Thursday and kept the overnight deposit rate at 19.0%, the overnight lending rate at 20.0%, and the main operation and discount rates at 19.5%, the CBE said in a statement (pdf).

The guidance language changed. The CBE dropped the “positive real interest-rate margin” formulation it had used consistently since April. It replaced “ready to adjust policy” with a broader commitment to “deploy all available policy tools,” and removed the reference to returning to the inflation target “in the near term.” Instead, the statement said, “the current degree of policy restrictiveness serves as a buffer” against upside risks, sufficient to preserve the projected disinflation path. The shift makes the guidance less dependent on a specific real-rate margin or timeframe, giving the CBE more flexibility — as Deutsche Bank puts it in a recent research note (pdf).

The inflation assessment backed the decision to hold. The CBE said inflation outcomes “turned out more favorable than expected” for a second consecutive meeting and revised its inflation forecast downward relative to the August MPC meeting. It now expects headline inflation to “stabilize on average in 3Q 2026.” That is a shift from the August statement, which had projected a temporary acceleration in 3Q on unfavorable base effects.

The data behind the change

The CBE highlighted “broad-based price stability across the CPI basket over the past three months,” citing monthly headline deflation of 0.4% in June, a flat rate of 0.0% in July, and a slight increase in price pressures of 0.1% in August. Annual urban inflation eased to 14.5% in August, undershooting both the 15.5% Reuters consensus and the CBE’s own earlier guidance for a 3Q pickup. Food prices fell for a third straight month (down 1.1% m-o-m), absorbing the roughly 12% household electricity hike that pushed housing costs up 42.8% y-o-y. Core inflation ticked up to 14.9% from 14.7%, which the CBE described as “broadly stable” across core food, retail items, and services.

Inflation is still expected to converge toward the 7% (±2 percentage points) target during 2H 2027, unchanged from previous guidance. Under its baseline, the CBE sees inflation averaging 16.6% in FY 2026/27, slowing to 8.1% in FY 2027/28.

Why a hold?

The growth story: The central bank confirmed that real GDP growth slowed to 4.7% in 2Q 2026 from 5.0% in 1Q, “mainly attributable to the adverse impact of regional tensions.” Full-year growth reached 5.1% in FY 2025/26 and is expected to remain broadly stable this FY.

BUT- The CBE said “output remains below its potential” and will converge toward full capacity only by 2H 2027. The resulting negative output gap, it argued, “suggests that demand-side inflationary pressures will remain limited in the short term, supported by an adequately tight monetary policy stance.”

Three risks the CBE is watching

“The balance of risks surrounding the inflation outlook remains tilted to the upside, reflecting the resurgence of regional hostilities,” the statement reads. More specifically, the CBE sees risks feeding through via “higher-than-anticipated pass-through from fiscal consolidation measures,” international food prices, and global energy prices remaining elevated for an extended period. The statement said these risks “could feed into domestic inflation.”

The pressure on the import bill is showing up in the data. Egypt’s total foreign trade volume reached USD 89 bn in 1H 2026, up around 19% from USD 75 bn in the same period last year, according to Capmas data (pdf). The trade deficit widened about 45% to USD 33 bn from USD 22.8 bn a year earlier, as imports jumped some 25% to USD 61 bn (up around USD 12 bn) while exports rose a more modest 7% (USD 1.9 bn) to USD 28 bn.

And shipping costs are about to add to that bill. Hapag-Lloyd is raising its Freight All Kinds ocean tariff rates from the Far East to Europe effective 19 October, with rates to Egypt, Turkey, and the East Mediterranean rising to USD 3.6k for 20-foot containers and USD 5.1k for 40-foot containers, per the carrier’s notice. The rates include marine fuel recovery and are valid until further notice.

Near-term hinges on fuel prices

HC Securities’ Heba Monir, the lone dissenter ahead of the meeting, told us last week her call for a 100-bps hike rests on what is coming, not what is already priced in. She expects September inflation to hit 1.3% m-o-m on seasonal rent adjustments and the start of the academic year, with October climbing further, around 2.1% m-o-m, as an expected c. 10% fuel-price increase works through the economy alongside subsidy cuts. Deutsche Bank also sees inflation picking up through the remainder of 2026 to 15-16% amid fuel price increases and a rebound in global food prices, with “a rate hike in 4Q remaining a risk scenario.”

The IMF is more cautious. It had expected inflation to average 16.7% in 2H 2026 on higher energy prices and exchange-rate depreciation, with convergence to the target delayed by about a year. The Fund also noted that Egypt’s flexible exchange rate absorbed the Iran war shock better than prior crises, but vulnerabilities — including high gross financing needs, heavy short-term debt, and a large state footprint — continue to pose medium-term risks.

Morgan Stanley is more optimistic. It forecasts inflation at 13.2% in September, below 13% from October, and 11.8% by December, with the CBE on hold through the year-end as “regional tensions override the space for easing.”

The global backdrop adds another layer. The US Federal Reserve raised rates 25 bps to 3.75-4.00%, the first hike under Chair Kevin Warsh, with 16 of 18 policymakers projecting at least one more increase this year. Brent broke through USD 100 a barrel earlier this month.

The external cushion

Head of Research at Ahly Pharos Hany Genena told us last week the corridor ceiling at 20% against 14.5% inflation gives a 5.5% positive real margin, a buffer that holds even if the Fed raises further. “Even if the Fed raises rates to 4.25-4.50%, the gap is still very wide in favor of the EGP,” he said.

Net international reserves stood at USD 57.2 bn at end-August, up USD 920 mn from July. The IMF noted the flexible exchange rate allowed the country to navigate capital flight earlier this year without draining reserves, unlike previous fixed-rate crises.

What to watch next

The CBE is comfortable with the current rate level as a “buffer” rather than a strict real-rate formula, and is keeping its toolkit open instead of locking into a single path. The next meetings — on 29 October and 17 December — will test whether the risks the CBE itself named (fuel prices, food costs, prolonged energy shock) materialize enough to force a move.