The Central Bank of Egypt (CBE) will keep interest rates unchanged when it meets on Thursday after inflation came in slightly lower in April, according to our interest rate poll. Seven of the nine analysts we surveyed see the CBE holding rates steady. The other two expect policymakers to raise rates, with one penciling in a 100-bps hike across the bank’s next two meetings and the other penciling in a 200-bps hike this week alone.

Where we stand: The overnight deposit rate stands at 18.25% while the overnight lending rate is 19.25% and the main operation and disc. rates are at 18.75%. The central bank has hiked rates by 1k bps since March 2022.

Breathing room: April’s cooler inflation reading of 30.6% is expected to give the central bank the chance to keep rates on hold at its next meeting and assess the impact of the jumbo 200-bps hike it made in March, according to most of the analysts we polled. Higher rates would also increase the cost of public borrowing — a burden that could instead be pushed back into next fiscal year, economist Mona Bedair said.

Or not: “We expect that the Central Bank of Egypt will continue its monetary tightening cycle and hike interest rates by a further 200 bps,” Capital Economics wrote in a note last week. CI Capital also joins the contrarian’s table, penciling in “an additional 100-bps hike in any of the coming two MPC meetings.”

Further devaluation could trigger a rate hike: “Pressure is building for another sharp fall in the currency,” Capital Economics wrote. Economist Hany Genena agrees, saying the central bank could be forced to raise rates by at least 200 bps on Thursday if there is an EGP devaluation in the days before the meeting. That said, BNP Paribas and Citigroup last week both said they think the chance of another devaluation before the end of June is slim — read more in our Economy section, below.

REMEMBER- April’s inflation reading likely marks only a temporary reprieve. Price hikes eased for the first time in 10 months in April — but recent decisions to hike the prices of diesel and subsidized commodities sold to ration card holders, the threat of further currency depreciation, and seasonal factors including the upcoming Eid mean most analysts expect it to accelerate again in the coming months.

It could take more than rate hikes to bring down inflation: “For the local interest rate tool to succeed, external factors such as the exchange rate and the implications of the war in Ukraine have to be resolved first,” banking expert Mohamed Abdelaal told us. His comment echoes recent statements by CBE Governor Hassan Abdalla, who last month expressed doubts on the effectiveness of monetary policy to curb inflation due to the supply-side factors influencing local prices.

Looking longer term: Interest rates could rise by another 50 bps to 19.75% by the end of this fiscal year in June before falling back to 18.25% by end-FY 2023-2024 and 13.75% by end-FY 2024-2025, per the median forecast in an April poll conducted by Reuters. The CBE is targeting inflation of 7% (± 2%) through 4Q 2024 and wants to bring inflation down to 5% (± 2 percentage points) by 4Q 2026.

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