CBE to decide fate of EGP interest rates tomorrow
The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) is set to hold its fourth scheduled meeting of the year on Thursday to decide the future of the central bank’s key policy rates, which serve as a key indicator of the short-term direction of interest rates on the Egyptian pound. Market expectations strongly favour a third consecutive decision to leave rates unchanged.
At its meeting on 21 May, the MPC kept the CBE’s key interest rates unchanged for a second consecutive time, following a similar decision on 2 April. The overnight deposit rate remained at 19%, the overnight lending rate at 20%, while the main operation rate and the discount rate were maintained at 19.5%.
The committee said the decision was consistent with its assessment of the latest inflation developments and outlook, against a backdrop of heightened uncertainty in the external environment.
Annual inflation
The Central Bank previously announced that annual core inflation, as measured by the CBE, remained unchanged at 13.8% in May 2026 compared with April. Monthly core consumer price inflation stood at 1.6% in May, up from 1.1% in April.
The CBE is due to release June inflation figures on Thursday.
The central bank had earlier forecast that annual headline inflation would accelerate until the third quarter (Q3) of 2026, partly due to unfavourable base effects, supply-side pressures arising from the ongoing conflict, resulting exchange rate movements, and fiscal consolidation measures.
It also projected that annual headline inflation would exceed its target of 7% (±2%) on average during Q4 2026 before gradually easing in Q1 2027, approaching the target during the second half of that year.
The CBE said this trajectory would be supported by a restrictive monetary policy stance, continuous assessment of inflationary pressures and monthly inflation developments, well-anchored inflation expectations, and a firm commitment to exchange rate flexibility.
However, it warned that the inflation outlook remains subject to upside risks, including the possibility of a prolonged conflict and stronger-than-expected effects from fiscal adjustment measures.
The CBE also noted that the global inflation outlook continues to face risks, particularly escalating geopolitical tensions, supply chain disruptions, and adverse shifts in international trade policies.
Monetary easing
Mohamed Abdel Aal, a prominent banking expert, said that while most domestic indicators appear, at first glance, to support the start of monetary easing, a comprehensive professional assessment clearly points towards another decision to leave interest rates unchanged.
Abdel Aal explained that several domestic indicators favour a rate cut, including expectations among most analysts that inflation declined in June, and the fall in Egypt’s Purchasing Managers’ Index (PMI) to 46.0 points in June from 47.1 in May, marking a sixth consecutive month of contraction and reflecting weak demand and subdued purchasing power in the non-oil private sector.
He also pointed to the strengthening of the Egyptian pound, which is trading below EGP 49 per US dollar, as a positive development reflecting improved confidence and reduced pressure on the foreign exchange market. This was accompanied by stronger performance in the Egyptian stock market and expectations that Egypt will receive a €1.5bn tranche of European financing in the coming days, supporting external liquidity and strengthening market confidence.
“However,” he added, “there are still strong reasons for the Central Bank to remain cautious.”
Even if inflation declined in June, he said, it remains above the level that would justify an early and comfortable rate cut.
He also noted that global markets have not yet entered a clear easing cycle, with the US Federal Reserve remaining sensitive to inflation expectations. Meanwhile, the modest increase in oil prices—even if not significant on its own—serves as a reminder to the MPC that energy and geopolitical risks have not disappeared entirely, and that an early rate cut could prove premature if commodity prices or shipping costs begin exerting renewed inflationary pressure.
Higher savings certificate rates
Abdel Aal also highlighted the decision by the Commercial International Bank (CIB) to raise the interest rate on its three-year fixed-rate savings certificate to 18%, effective from 7 July, bringing it broadly into line with state-owned banks and, in some cases, offering even higher returns.
He said this move, coming ahead of the MPC meeting, should not be interpreted as a signal that an interest rate cut is imminent, but rather as a clear banking sector hedge against interest rates remaining elevated for a longer period, or at least against the likelihood of a significant near-term reduction.
According to Abdel Aal, leaving rates unchanged at Thursday’s meeting should not be viewed as a renewed tightening of monetary policy but rather as a carefully calculated pause.
He said the Central Bank is likely waiting for three conditions before resuming monetary easing: a sustained and repeated decline in both headline and core inflation, continued stability in the foreign exchange market, and a further easing of external risks related to global interest rates, energy prices, and geopolitical developments.
“Based on the current data, the most professional and consistent scenario is to keep interest rates unchanged while leaving the door open for future cuts if forthcoming inflation data confirm that the disinflation trend has become more firmly established,” he said.
“This pause is not a rejection of monetary easing but a deliberate postponement. The Central Bank is not simply waiting for lower inflation figures—it wants greater confidence that the decline will prove sustainable.”
Monetary and financial stability
For her part, banking expert Shaimaa Wagih said the upcoming MPC meeting is among the most important of 2026—not merely because it will determine interest rates, but because it comes at a stage when the Egyptian economy is transitioning from managing economic pressures to managing monetary and financial stability.
She said this phase naturally requires more balanced and carefully calibrated decisions based on a comprehensive assessment of economic indicators rather than reacting to any single indicator or short-term market movements.
Wagih noted that monetary policy has largely achieved its objectives by containing inflationary pressures, strengthening foreign exchange market stability, and reinforcing the resilience of the banking sector over recent months. This has given the Central Bank greater flexibility in managing its monetary tools while maintaining stability as the foundation for sustainable economic growth.
She argued that the current phase differs fundamentally from previous years. Whereas the priority had previously been to combat inflation, absorb external shocks, and restore monetary stability, the focus has now shifted towards preserving these achievements and avoiding premature decisions that could undermine them.
“From this perspective,” she said, “monetary policy has become more inclined towards caution, allowing sufficient time to assess the full impact of previous policy decisions before moving into a new phase of monetary easing.”
According to Wagih, inflation is no longer the sole determinant of interest rate decisions. Instead, the Central Bank now bases its decisions on a comprehensive assessment that includes developments in the foreign exchange market, foreign currency liquidity, international reserve levels, foreign investment inflows, banking sector performance, and global economic conditions.
“This approach reflects a clear maturation of monetary policymaking, where decisions are based on a balanced reading of the entire economic landscape rather than temporary movements in a single indicator,” she said.
Foreign exchange market
Wagih said recent improvements in the foreign exchange market have enhanced the flexibility of monetary policy by stabilising the exchange rate, improving banks’ ability to provide foreign currency, and increasing confidence in the Egyptian economy.
She added that the continued rise in foreign currency inflows has eased many of the pressures previously facing monetary policy, giving the Central Bank greater flexibility in determining the appropriate timing of any future interest rate adjustment.
She noted that despite the marked decline in inflation, the Central Bank continues to treat the indicator cautiously, as its objective is not merely to record lower inflation readings but to ensure that the downward trend remains sustainable and prevents inflationary pressures from re-emerging.
“Continued disinflation supports monetary policy,” she said, “but by itself does not justify a rapid return to an interest rate-cutting cycle.”
She added that despite improving domestic indicators, the global economic environment remains characterised by volatility and uncertainty due to ongoing geopolitical tensions, fluctuations in energy prices, and diverging policy directions among major central banks.
“As a result, maintaining an appropriate degree of caution remains one of the main pillars of monetary policy during the current period,” she said, “ensuring that the Egyptian economy remains resilient to any future external shocks.”
According to Wagih, maintaining current interest rates appears to be the option most consistent with current policy priorities, as it simultaneously reinforces price stability, preserves the attractiveness of local debt instruments for investors, and provides additional time to assess the impact of previous monetary policy decisions on economic activity.
She added that a limited rate cut cannot be ruled out if the MPC concludes that the recent decline in inflation has become sustainable, the foreign exchange market remains stable, and foreign capital inflows continue to strengthen—thereby creating sufficient room for a gradual easing cycle without undermining monetary stability or confidence in the economy.
Wagih stressed that the significance of Thursday’s MPC meeting extends beyond the interest rate decision itself to include the signals it will send regarding the committee’s assessment of future risks, its inflation outlook, and the likely direction of monetary policy during the second half of the year.
“Based on the current monetary landscape, maintaining interest rates remains the most likely scenario, with a probability of around 70%, reflecting the Central Bank’s desire to consolidate monetary stability and complete its assessment of the previous easing cycle. A limited cut of no more than 50 basis points carries an estimated probability of around 30%, should the committee conclude that the disinflation trend has become more durable and that strong foreign inflows and exchange rate stability provide sufficient room to act,” she said.
“In my view, the Central Bank is no longer managing interest rates through the lens of tightening or easing alone, but rather through the broader objective of managing economic balances. The forthcoming decision will reflect a strategy focused on safeguarding monetary stability, strengthening confidence in the Egyptian economy, and creating a more stable environment for investment and production. This represents a notable evolution in Egypt’s monetary policy framework, with greater emphasis on forward-looking analysis and balancing price stability with sustainable economic growth.”
Macroeconomic developments
HC Securities & Investment’s research department also expects the Central Bank of Egypt to leave interest rates unchanged at Thursday’s meeting, citing recent macroeconomic developments and geopolitical conditions.
Heba Mounir, the firm’s macroeconomics analyst, said regional geopolitical tensions resulting from the US-Israeli war against Iran, which began on 28 February, continue to affect both the global economy and Egypt. However, she noted that Egypt’s stable external position and flexible exchange rate have enabled the economy to absorb the impact relatively well so far.
She expects inflation to move broadly sideways after slowing to 14.6% year-on-year and 1.6% month-on-month in May, compared with a peak of 15.2% year-on-year and 3.2% month-on-month in March—the highest level in 14 months—reflecting the impact of the conflict on energy prices and the depreciation of the currency.
“Given geopolitical risks and their implications for Egypt’s foreign currency resources, our revised inflation forecasts, the need to preserve the attractiveness of foreign investment in Egypt’s domestic debt market, and fiscal deficit targets, we expect the MPC to leave interest rates unchanged at its upcoming meeting,” she said.
Reserve requirement ratio
Separately, economists surveyed by Reuters also expect the Central Bank to leave overnight interest rates unchanged for a third consecutive meeting when the MPC convenes on Thursday, citing the relative easing of regional tensions following the ceasefire agreement.
According to Reuters, the respite provided by the ceasefire between the United States and Iran is still insufficient to justify another rate cut. Some analysts also suggested that the Central Bank could instead lower the reserve requirement ratio.
All 13 economists surveyed by Reuters expected the overnight deposit rate to remain at 19% and the overnight lending rate at 20%.
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