CBE expected to hold interest rates for sixth consecutive meeting

The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) will hold its seventh scheduled meeting of the year on Thursday to decide on its key policy interest rates, a major indicator of the direction of short-term interest rates on the Egyptian pound, amid strong expectations that rates will remain unchanged for the sixth consecutive meeting.

At its previous meeting on 24 September, the committee decided to maintain the overnight deposit rate at 19%, the overnight lending rate at 20%, and both the main operation rate and the discount rate at 19.5%.

This marked the fifth consecutive decision to hold rates, following similar decisions on 20 August, 9 July, 21 May, and 2 April.

In the statement accompanying its September decision, the MPC said the decision reflected its assessment of the latest inflation developments and outlook, alongside changes in the risks surrounding inflation.

The committee stressed that it would continue assessing monetary conditions in light of economic developments affecting the expected inflation trajectory and associated risks, and would not hesitate to use the tools at its disposal to maintain price stability.

Annual inflation declines

Earlier this month, the CBE reported that annual core inflation had declined to 14.1% in September 2026, compared with 14.9% in August.

The central bank noted that its core consumer price index recorded a monthly increase of 0.8% in September, compared with 0.3% in August.

The Central Agency for Public Mobilisation and Statistics (CAPMAS) also reported that annual urban inflation had fallen to 13.9% in September from 14.5% in August.

However, monthly price increases accelerated to 1.3% in September from 0.1% in August, driven by higher vegetable and food prices.

Earlier in September, the CBE lowered its inflation forecasts, expecting annual headline inflation to stabilise during the third quarter of 2026 before gradually declining towards its target of 7% ± 2 percentage points in the second half of 2027.

The downward revision followed inflation developments that had been more favourable than previously anticipated.

The CBE explained that the revised inflation outlook would reinforce the current monetary conditions, which remain sufficiently restrictive, providing additional support for the expected downward trajectory of inflation.

Mohamed Abdel Aal

At the same time, the central bank warned that the balance of risks surrounding its inflation forecasts remained tilted to the upside, reflecting renewed regional hostilities that could affect domestic inflation.

Meanwhile, 11 financial institutions and investment banks expect the CBE to leave interest rates unchanged at Thursday’s meeting.

Their expectations come amid mounting inflationary risks stemming from higher global oil and commodity prices and the pound’s depreciation to record lows against the dollar, limiting the scope for resuming monetary easing despite inflation slowing for a second consecutive month.

The survey, conducted by Asharq Bloomberg, included Thndr Securities Brokerage, Al Ahly Pharos, CI Capital, Zilla Capital, HC Securities & Investment, Naeem Brokerage, Ostoul Holding, Mubasher Securities Trading, Prime Securities, and Sigma Securities Brokerage.

Strong expectations of continued caution and unchanged rates

Senior banking expert Mohamed Abdel Aal said there were strong expectations that the CBE would maintain its policy of what he described as “positive inaction”, characterised by caution and keeping rates unchanged, effectively closing the temporary monetary easing phase that began earlier this year with a one-percentage-point interest rate cut.

He explained that the MPC began the year in February with a carefully calibrated one-percentage-point rate cut, accompanied by a reduction in reserve requirements to support liquidity and economic activity.

Since then, the committee has entered a period of holding rates and monitoring developments through a succession of unchanged-rate decisions, notably in April, May, July, and August, leading up to Thursday’s meeting.

Abdel Aal argued that maintaining rates had not represented policy inertia, but rather a tactical pause to absorb the effects of structural changes in the exchange rate and assess the impact of previous easing on the wider economy without allowing inflation to rebound.

According to Abdel Aal, several domestic and external factors will influence the MPC’s decision.

The most important domestic considerations are inflation and the exchange rate, while geopolitical tensions, oil prices, and the direction of US interest rates are the main external factors.

He considers an interest rate increase by the CBE relatively unlikely, even though some observers anticipate such a move in response to global oil shocks and concerns about imported inflation.

He also considers a rate cut unlikely, despite the potential benefits of supporting economic activity and easing the debt-servicing burden on the state budget.

Consequently, he believes the most likely outcome is to maintain rates at their current levels, describing this as the most rational and balanced option at this stage.

In his view, the CBE prefers a wait-and-see approach, assessing the impact of external shocks against easing domestic inflationary pressures and weak purchasing power.

MPC considerations

Banking expert Shaimaa Wagih also expects the CBE’s MPC to maintain interest rates at Thursday’s meeting rather than introduce another increase.

She said the committee faces a delicate balance between the need to continue containing inflation, preserving the attractiveness of Egyptian pound-denominated assets, and avoiding additional pressure on economic activity through higher financing costs.

Shaimaa Wagih

However, Wagih stressed that this expectation does not mean further monetary tightening can be ruled out.

Exchange rate movements, geopolitical developments, and global price trends could alter the committee’s calculations if they translate into sustained pressure on prices and external stability.

She noted that interest rate decisions are not based on a single month’s inflation reading, but on the expected direction of prices, the sustainability of any decline, and the impact of previous monetary policy decisions on domestic demand, credit, and the foreign exchange market.

According to Wagih, the possibility of a limited interest rate increase depends on several interconnected indicators, particularly continued depreciation of the pound, renewed inflationary pressures, higher global energy and food prices, and changes in foreign capital flows.

If these factors converge and suggest that inflation could resume a sustained upward trend, the cost of maintaining rates could become greater than the cost of additional tightening.

She added that if the foreign exchange market stabilises, inflation expectations remain under control, and external risks do not trigger a new wave of domestic price increases, maintaining rates would be more consistent with the CBE’s objective of preserving monetary stability without weakening economic activity.

“I expect the Monetary Policy Committee to maintain interest rates at its next meeting, as doing so would give the Central Bank an opportunity to assess inflation trends, exchange rate developments and the impact of previous decisions without adding further pressure to financing costs,” Wagih said.

“Nevertheless, the possibility of a limited rate increase remains if pressure on the pound intensifies or indicators emerge suggesting that inflation is beginning to rise again.”

Macroeconomic developments and persistent geopolitical risks

The research department at HC Securities & Investment also expects the CBE’s MPC to maintain its key overnight deposit and lending rates at their current levels at Thursday’s meeting.

The forecast reflects recent developments in Egypt’s macroeconomic conditions, persistent geopolitical risks, and the attractiveness of the Egyptian debt market.

Heba Mounir, macroeconomic analyst at HC Securities & Investment, said global economic and political instability was casting a shadow over the Egyptian economy and had begun to place pressure on improvements in some external indicators.

Heba Mounir

On the positive side, she noted that the Egyptian banking sector’s net foreign assets and the country’s net international reserves had reached record levels of $31.2bn at the end of August and $57.3bn at the end of September, respectively.

However, global and geopolitical instability has affected several other indicators.

Egypt’s five-year credit default swap (CDS) spread rose to 343 basis points, compared with its lowest level since the beginning of the year of 262 basis points on 28 August.

The Egyptian pound has also depreciated by approximately 14% against the dollar since the beginning of the year and by around 5% since the start of the month, surpassing its previous low of EGP 54.73 per dollar recorded on 7 April.

Mounir said this reflected exchange rate flexibility.

“Although we believe the current wave of pound depreciation is temporary, it could continue until the end of the year due to a combination of domestic and external factors,” she explained.

“Externally, geopolitical instability is increasing pressure on foreign currency inflows, alongside Egypt’s rising import bill for energy products and wheat, as well as obligations related to external debt repayments and outstanding payments to foreign oil companies operating in Egypt.

“Domestically, the fourth quarter of 2026 is expected to see pressure on foreign currency liquidity as foreign companies repatriate profits at year-end, alongside a possible increase in imports of certain food commodities ahead of Ramadan.”

Regarding domestic inflation, Mounir noted that the government committee responsible for fuel pricing had decided to keep petrol and diesel prices unchanged until the end of December 2026, which should help contain inflationary pressures.

“Accordingly, we expect inflation to average around 13% during the fourth quarter of 2026, compared with our previous forecast of 14.5%,” she said.

“For 2027, we have revised our average inflation forecast to 11.5%, up from 10.9% previously, reflecting the persistence of inflationary risks arising from global instability.”

Turning to the attractiveness of Egypt’s debt market, Mounir said the latest auction of 364-day Treasury bills, which offered a yield of 25.91%, implied a positive real interest rate of 10.5%.

This calculation is based on HC’s revised average inflation forecast of 11.5% for 2027 and takes into account the 15% tax applicable to European and US investors.

She said the figures indicated that the Egyptian debt market remained attractive.

Impact of pound depreciation

Analysts surveyed by Reuters also expect the CBE to leave interest rates unchanged on Thursday for the sixth consecutive meeting, as the effects of the pound’s depreciation to a record low, rising energy prices, and escalating regional conflict outweigh the impact of slowing inflation.

All analysts surveyed between 22 and 27 October expect the CBE to maintain its overnight deposit rate at 19% and its overnight lending rate at 20%.

James Swanston of Barclays said inflation remained above the central bank’s target, while regional escalation and the pound’s depreciation over recent weeks provided grounds for keeping interest rates unchanged once again.

Jamil Naeem of S&P Global Market Intelligence said consumer prices were likely to remain under pressure amid rising energy prices and the repercussions of regional tensions.

Naeem expects the CBE to resume interest rate cuts at its final meeting of the year in December, depending on the inflation outlook and external price pressures.