The expectations for the MPC’s anticipated decision diverge between keeping the current interest rates, as monthly inflation is going higher, and introducing fresh cuts amid the controlled inflation rates and the stability of prices in the local market.
Based on the MPC decision in its last meeting in April, the CBE introduced a significant policy shift, cutting its key interest rates by 2.25 percent (225 bps).
The overnight deposit rate is now 25 percent, the overnight lending rate is 26 percent, and the main operation rate is 25.5 percent. The discount rate was also lowered to 25.5 percent.
HC Securities and Investments expected the MPC to cut the key interest rates by two percent (200 bps) on Thursday.
Heba Monir, a financial analyst and economist at HC Securities and Investment, attributed this projection to Egypt’s improving macroeconomic indicators and relative geopolitical stability.
“The country’s external position is showing signs of stabilization — evident in the the second quarter (Q2) of the FY2024/2025 balance of payments turning to a $489 million surplus, a marked shift from prior deficits," she said.
"A stronger net foreign asset position in the banking sector, bolstered by increased foreign direct investment (FDI), an International Monetary Fund (IMF) tranche, and improved foreign exchange (FX) liquidity, reinforces this trend. Furthermore, net international reserves rose by $387 million in April, with additional support from higher gold holdings and special drawing rights (SDRs),” Monir explained.
In its latest Monetary Policy Report for Q1 of FY2024/2025 (July-September 2024), the CBE projected Egypt’s real GDP growth to climb to 4.3 percent, up significantly from the 2.4 percent recorded in FY2023/2024. The expected jump comes after two sluggish years.
This projected rebound signals a shift in momentum, primarily driven by a revitalized manufacturing sector.
Improvements in the foreign exchange market, particularly the unification of exchange rates, have allowed manufacturers better access to raw materials and intermediate goods, helping to restart production lines that had been slowed or stalled.
The central bank’s decisive policy measures in March, including a steep 6 percent interest rate hike and currency correction, helped pave the way.
Yet by April, the CBE had already begun easing again, slashing interest rates by 2.25 percentage points, suggesting confidence in a turning tide.
Looking ahead, the report forecasted growth to accelerate further to an average of 4.8 percent in the upcoming FY2025/2026. That improving growth picture also feeds into a cautiously optimistic inflation outlook.
Inflation, which peaked at an annual average of 28.3 percent in 2024, is expected to ease to around 14-15 percent in 2025 and 10-12.5 percent in 2026.
The CBE suggested that the disinflation trend will likely persist, supported by constrained domestic demand under tight monetary policy and bolstered by fiscal consolidation efforts. These newly released projections signal room for introducing new interest rate cuts.
It is worth noting that CBE targets an average inflation rate of seven percent (±two percent) by Q4 of 2026. Achieving this will require inflation expectations to remain anchored, even as non-food inflation proves stickier than hoped and as fiscal reforms continue to unfold.
“While inflation remains above the CBE’s target, the trend is downward, with April’s headline inflation of 13.9 percent aligning closely with expectations. Treasury yields continue to attract foreign interest, helping support the EGP, which appreciated three percent recently," Monir indicated.
"Despite some weakness in domestic consumption, indicated by the April purchasing managers’ index (PMI) drop to 48.5, we believe that the current environment offers the central bank room to ease policy. A rate cut would support growth without significantly jeopardizing price stability,” she added.
Speaking to Ahram Online, banking expert Ahmed Shawky explained that, in light of the country’s broader economic strategy, monetary policy aims to reduce the inflation gap, which reflects deviations in inflation rates from levels consistent with price stability, and to narrow the output gap, which indicates fluctuations in real economic activity from its full productive capacity.
The policy also seeks to align inflation rates with the exchange rate to achieve the single-digit inflation target by the end of 2026. This target is not far-fetched given the current inflation levels of 13.9 percent for headline inflation and 10.4 percent for core inflation, he noted.
"The committee is working through the interest rate tool to strike a balance between the inflation gap and the output gap, while also coordinating between foreign indirect investment in debt instruments, direct investment, and real GDP growth, which is currently approaching four percent,” Shawky added.
According to the expert, the MPC still has room to implement further rate reductions during the current year following the 2.25 percent rate cut in its last meeting.
However, it is expected that the committee may opt to hold interest rates steady in the upcoming meeting due to the recent relative rise in both headline and core inflation, mainly driven by fiscal policy decisions, such as the reduction in fuel subsidies, he explained.
"Additionally, heightened uncertainty stemming from ongoing geopolitical tensions in the Middle East and the relatively calm but temporary 90-day truce between the US and China are influencing the committee's outlook,” Shawky stated.
With an extra hike anticipated this year, Egypt raised the prices of all retail fuel products by around 11.7-33.3 percent in April. This marked the first hike in 2025 after Prime Minister Mostafa Madbouly announced a six-month freeze in October.
This action drove the country’s monthly core inflation higher in April to 1.2 percent, up from 0.9 percent recorded in March, according to the CBE calculations.
Moreover, the annual core inflation also accelerated in April to 10.4 percent, compared to 9.4 percent a month earlier.
Egypt’s urban headline inflation also jumped to 1.3 percent in April, up from 1.1 percent in the corresponding month last year, but slightly down from 1.6 percent in March, according to the Central Agency for Public Mobilization and Statistics (CAPMAS).
On an annual basis, urban consumer price inflation reached 13.9 percent in April, a modest rise from 13.6 percent in March, after almost five consecutive months of contraction.
“The committee is likely to continue monitoring economic and financial developments closely, evaluating their potential impact on key indicators, and working to preserve the attractiveness of debt instruments to investors,” Shawky told Ahram Online.
He added that a gradual interest rate easing path remains likely throughout the year, depending on economic indicators.
“In a more distant scenario, the committee might cut rates by one percent at the next meeting, considering the gap between interest rates and inflation levels," he said.
However, the more probable scenario for the MPC is to keep rates unchanged at their current levels, 25 percent for the deposit rate and 26 percent for the lending rate, Shawky expected.
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