While inflation data shows a notable decline, concerns persist over potential sudden rebounds due to rising local fuel prices and escalating global trade wars led by the US.
However, indicators cautiously suggest that the countdown for lowering interest rates has begun.
Aya Zoheir, deputy head of Macroeconomic Research at Zilla Capital, noted that estimates have been cautiously revised over recent months.
"At the beginning 2025, we expected a reduction of 3-4 percent, but we now see a closer reduction of about 1-2 percent due to variables like rising fuel prices, despite falling inflation," she stated.
Amr El-Feky, head of Equity Strategies at Ramble Research, concurred.
El-Feky said he believes a gradual reduction is more appropriate than an expansive one.
Risk lingers with declining inflation
Egypt's annual inflation rate slowed to 13.6 percent in March, down from nearly 25 percent a year ago.
This decline prompted investment banks to revise their forecasts, stressing that pressures have not completely dissipated.
Zoheir explained that the increase in fuel prices will impact April’s inflation reading, but it will not be enough to disrupt the downward price trend.
"Even with this increase, we expect the average inflation in 2025 to be below 16 percent, keeping Egypt within the CBE's target range," she added.
Given these estimates, monetary policy is expected to approach decisions gradually while maintaining market stability and the attractiveness of debt instruments.
El-Feky believes the CBE will avoid sharp cuts, opting instead for calculated phases that will minimize negative impacts on liquidity and the currency market.
Zoheir also agrees that the CBE is moving with a delicate balance. "The interest rate cut will not be sudden but rather measured, linked to improvements in macroeconomic indicators and a reduction in external risks," she said.
Global inflation under pressure
The global inflation landscape has changed following recent comments from the US Federal Reserve Chair Jerome Powell, who indicated that tariffs imposed by US President Donald Trump on around 180 countries — despite a temporary 90-day suspension — could reignite inflation.
However, El-Feky said this impact is not entirely negative for emerging markets.
"Yes, tariffs may raise prices in America, but they reduce demand and increase global supply, which is already reflected in declining oil prices below $60 per barrel," he explained.
Untapped opportunities
El-Feky believes global shifts necessitate proactive measures from Egypt, particularly in renegotiating US tariffs and reviewing the Qualifying Industrial Zones Agreement to improve export conditions.
"The opportunity now favours local companies with high production capacities, and they should be supported to increase exports rather than waiting for uncertain decisions from the US administration," he stated.
On the exchange rate front, El-Feky did not rule out an additional pound float, linking it to slowed inflows or a widening gap with the parallel market.
"Lowering the pound may boost exports and attract investment, but it increases import costs and should not happen without social safety nets and precise monetary policies," he warned.
According to S&P Global's forecasts, the dollar's exchange rate against the pound is expected to reach EGP 51 by the end of June 2025, drop to EGP 54/$1 by June 2026, and then EGP 57/$1 by June 2027.
Experts agreed that the CBE is closer than ever to a calculated interest rate reduction, but it will not be widespread.
The move will be gradual, supported by declining inflation, yet cautious due to anticipated price increases and international policy pressures.
"The next step is a gradual interest rate cut, with no room for exaggerated decisions and no desire to shock the markets," Zoheir concluded.
El-Feky pointed out that Egypt may be on the right track to achieve the CBE's inflation targets, hovering around 7 percent (±2 percent) in the medium term.
"If the current pace of inflation decline continues, Egypt can reach these targets by 2026, especially if control over essential goods and energy costs persists," he concluded.
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