The Central Bank of Egypt's Monetary Policy Committee will meet on Thursday to decide on key policy rates, which indicate the near-term direction of interest rates on the Egyptian pound. This meeting comes amid strong expectations that rates will remain unchanged for a fifth consecutive time. At the last meeting on August 20, the committee kept the overnight deposit rate at 19%, the overnight lending rate at 20%, and the main operation and discount rates at 19.5%.
The decision to hold rates was consistent with the committee's assessment of the latest inflation developments and outlook. The goal is to maintain an adequately positive real interest rate to ensure that inflation expectations remain anchored and support inflation's downward trajectory. The committee expects inflation to begin declining gradually from the first quarter of 2027, approaching its target of 7% (±2) during the second half of the year.
However, the inflation outlook remains subject to upside risks, particularly an escalation of regional tensions and a greater-than-expected impact from fiscal consolidation measures. In August, annual core inflation rose to 14.9% from 14.7% in July. On a monthly basis, the core consumer price index increased by 0.3% in August, compared with no change in July. The Central Agency for Public Mobilisation and Statistics reported that the headline consumer price index for urban areas rose by 0.1% month-on-month in August.
A Reuters poll showed that the Central Bank of Egypt is almost certain to leave interest rates unchanged on Thursday. Eleven of the 12 economists surveyed by Reuters expected the bank to keep its overnight deposit rate at 19% and its lending rate at 20%. HC Securities & Investment was the sole exception, forecasting a one-percentage-point rate increase. Mohamed Abu Basha of EFG Holding said inflation was slowing, but higher oil prices were increasing the risk of renewed price pressures.
A separate Bloomberg survey of 10 Egyptian financial institutions and investment banks also showed expectations that the Central Bank would keep rates unchanged at Thursday's meeting. The institutions surveyed included EFG Hermes, Thndr Securities Brokerage, Al Ahly Pharos, CI Capital, and Cairo Capital Securities. The surveys cited inflationary risks stemming from higher global oil prices and escalating geopolitical tensions.
Banking expert Shaimaa Wagih said the Monetary Policy Committee was entering Thursday's meeting at a stage where the decision had become more complex than simply choosing between cutting rates and keeping them unchanged. The economic environment now required a careful balance between continuing to bring inflation down, maintaining the attractiveness of the Egyptian pound and local assets, and supporting economic activity and investment without allowing price pressures to re-emerge.
Wagih highlighted the importance of real interest rates in the monetary policy equation, noting that current interest rate levels showed that monetary policy remained restrictive. With headline inflation at around 14.5%, nominal interest rates remain above the inflation rate, providing a positive real interest rate margin that is important for anchoring inflation expectations and maintaining the attractiveness of Egyptian pound-denominated assets.
Key points
- The Central Bank of Egypt's Monetary Policy Committee is expected to keep interest rates unchanged for a fifth consecutive time amid inflation concerns and regional tensions.
- The committee aims to maintain an adequately positive real interest rate to ensure that inflation expectations remain anchored and support inflation's downward trajectory.
- The inflation outlook remains subject to upside risks, particularly an escalation of regional tensions and a greater-than-expected impact from fiscal consolidation measures.
