JPMorgan Warns Pound Slide Could Push Egypt Inflation to 14.3% by Year-End

Egypt Daily News – Egypt News.

Egypt’s currency slide is putting renewed attention on the cost of living, with JPMorgan now forecasting that inflation will reach 14.3% by the end of the year. The bank’s revised outlook reflects concern that the weaker pound will gradually push up prices, even as government-controlled subsidized prices remain unchanged.

The Egyptian pound has fallen about 7.3% since the beginning of October, JPMorgan said, as foreign investors pulled money from local debt instruments. A weaker currency can make imported goods and production inputs more expensive, though the scale and timing of any price increases depend on how quickly businesses pass those costs on to consumers.

Inflation was already edging higher before the bank revised its forecast. Annual inflation across Egypt rose to 12.8% in September from 12.7% in August, while prices increased 1.5% over the month, according to the Central Agency for Public Mobilization and Statistics.

JPMorgan expects the current round of price pressure to be milder than the shock Egypt experienced in March. The pound lost roughly 12% of its value during that episode, which coincided with fuel-price increases and seasonal demand around Ramadan. This time, the government has not raised prices for goods covered by subsidies, a difference the bank considers important to the outlook.

The forecast adjustment comes as monetary policymakers have returned to raising rates. The Central Bank of Egypt increased its key rates by one percentage point last Thursday. The overnight deposit rate now stands at 20%, and the overnight lending rate is 21%. The central bank’s main operation rate and credit and discount rate both rose to 20.5%.

JPMorgan considers the increase a timely response to the prospect of faster inflation. It expects the central bank to hold rates at its December meeting unless the pound faces further serious pressure. The bank anticipates that inflation will eventually drop below 10%, potentially creating room for rate cuts in the second half of 2027. Whether that easing begins as projected will depend on economic and financial conditions outside Egypt as well as domestic trends.

The central bank’s recent policy decisions follow a period of rate reductions. It cut rates by one percentage point at its first meeting of 2026, after cumulative cuts of 7.25 percentage points across five meetings in 2025. The latest increase marks a shift toward defending the inflation outlook against currency pressures and the risk of further regional shocks.

In its second-quarter 2026 monetary policy report, the central bank examined two possible regional scenarios. One assumes that conflict and tension ease, global energy prices decline, and investors become less cautious about risk. Under those conditions, the exchange-rate outlook would improve and the economy would need less fiscal adjustment than under the central bank’s baseline. Inflation would be expected to return to the target range in the second half of 2027.

A more adverse scenario assumes that conflict escalates, energy prices rise and investors become more risk-averse. Renewed regional tensions would add pressure to Egypt’s economy and could drive inflation higher in the second half of 2026. The central bank nevertheless projects that inflation would return to its target range in the second half of 2027, although achieving that path could require tighter monetary policy.

The report projects average inflation of 15.2% in the 2026–2027 fiscal year and 7.7% in 2027–2028 under one of its scenarios. In the more difficult scenario, the corresponding projections rise to 17.8% and 8.3%. The report also presents estimates of 16.6% and 8.3% in the event that regional conflict subsides and trade returns to normal, underscoring how sensitive the outlook is to the assumptions behind each projection.

Egypt’s inflation targets are 7%, with a two-percentage-point margin in either direction, for the fourth quarter of 2026, and 5%, with the same margin, for the fourth quarter of 2028. That means the target ranges are 5% to 9% and 3% to 7%, respectively.

The immediate question for monetary policymakers is whether higher interest rates can contain price pressures without further tightening. JPMorgan’s outlook rests partly on the expectation that the latest increase will be enough for now. But another decline in the pound could alter that calculation, while developments in energy markets and regional trade will help determine how quickly inflation can return to the central bank’s targets.

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