On 21 May the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) is scheduled to meet to decide on the direction of key policy rates. Analysts believe it is likely to keep rates unchanged as it did at its 2 April meeting because of the uncertainty posed by the US-Iran war.
“If there is one certainty now, it is uncertainty itself,” said the World Bank’s Middle East and North Africa (MENA) economic update for April 2026 on “Challenges of Conflict and Industrial Policy”.
“Geopolitical risk rapidly emerged as the prevailing concern among investors and policymakers alike, with the Geopolitical Risk Index reaching its highest daily level since 2003,” the report noted.
Had it not been for the war, the CBE might have been cutting interest rates by now because it had begun an easing cycle earlier in the year. Instead, because of heightened inflation risks, the CBE will at best be keeping rates unchanged.
Financial analyst and economist at HC Securities and Investment Heba Monir noted that several recent factors will result in inflationary pressures. These include an increase in the price of natural gas for the industrial sector on 3 May due to a surge in oil prices of around 50 per cent, in addition to an increase in natural gas prices of around 58 per cent and a five per cent increase in wheat prices, all of which will pressure foreign-exchange liquidity.
In addition, this week electricity prices were raised for several economic and services sectors such as the Cairo metro, water-distribution companies, and irrigation, as well as commercial and service subscribers. The effect of the hikes on consumers is also likely to feed inflation.
Although annual urban headline CPI (consumer price index) inflation cooled to 14.9 per cent in April down from 15.2 per cent in March, inflation is still forecast to rise. In its Monetary Policy Report for the first quarter of 2026, the CBE revised its baseline inflation forecast upward, with annual headline inflation now expected to increase in the second quarter of 2026 and remain elevated throughout the year to average 16 to 17 per cent.
According to economist Ahmed Rashad, inflation in Egypt is largely driven by external factors, including higher energy prices, weaker investor confidence in the region, and pressure on the exchange rate.
Exchange-rate pressures quickly transmit into domestic prices, he noted. Externally driven inflation is more difficult to fight than demand-driven inflation, as many of its underlying causes lie beyond domestic policymakers’ direct control, he added.
With geopolitical tensions showing no sign of abating, interest rates are likely to remain elevated for longer, globally and in Egypt alike, Rashad said. Nevertheless, he added, the policy response can include a greater focus on competition policy, supply expansion, and consumer protection.
“Removing obstacles that constrain supply and preventing unjustified price increases or collusive behaviour among suppliers during periods of crisis should become central priorities,” Rashad stressed.
The priority is not only to bring inflation down as a headline number, but also to reduce its impact on households’ purchasing power, highlighted economist Ahmed Elsayed.
He believes that this requires not only maintaining prudent monetary policy, but also expanding targeted social protection, reducing logistics and distribution bottlenecks, strengthening market competition, and improving the supply of essential goods.
To improve the latter, a mega-project, the New Delta Project, was launched this week by President Abdel-Fattah Al-Sisi. The project is one of Egypt’s largest agricultural expansion initiatives, aimed at reclaiming vast desert areas west of the Nile Delta to boost food security and reduce the reliance on imports.
Despite fuelling inflation, recent increases in energy prices meet commitments made under Egypt’s International Monetary Fund (IMF)-backed reform programme aimed at cutting subsidies, improving cost recovery, and narrowing the fiscal deficit.
The increases in electricity and natural gas prices come as an IMF team visits Cairo to carry out the seventh review under its Extended Fund Facility (EFF) and the second review under its Resilience and Sustainability Facility (RSF).
Once completed and approved by the IMF’s executive board, Egypt will receive a new disbursement of around $1.6 billion.
According to Elsayed, Egypt has a good chance of passing the reviews, but not without comments from the IMF. The strongest areas are likely to be exchange-rate flexibility, improved foreign-currency availability, and continued fiscal-consolidation efforts.
Egypt’s flexible exchange-rate regime has helped cushion the impact of moderate capital outflows on foreign-currency reserves, reinforcing policy credibility and containing the fallout from the Iran war on the country’s B/Stable sovereign rating, according to Fitch Ratings on 15 May.
The Egyptian pound has depreciated by around 13 per cent against the dollar since the outbreak of the conflict.
Another area the government is showing commitment to is reform of the subsidy system. Prime Minister Mustafa Madbouli and the minister of supply have sent clear messages that the government is moving steadily towards applying cash subsidies instead of the in-kind subsidy system.
On Monday, Madbouli said the proposed programme is an integrated cash-based system divided into categories according to the income levels of targeted citizens. Moving to a cash-subsidy system is also encouraged by the IMF.
Elsayed believes that cash subsidies can be more efficient than broad commodity subsidies if they are well-designed and properly implemented. They allow the government to direct support to the households that need it most, rather than subsidising prices for everyone, including higher-income groups.
They also reduce leakage, waste, and distortions in the markets, he added. However, he stressed that the government needs to ensure that beneficiary databases are accurate and regularly updated and that the value of the cash transfers is adjusted to reflect inflation.
Moreover, he added, the shift should be gradual, and there should be a clear grievance mechanism, strong monitoring of food-security and poverty indicators, and coordination with wider social-protection programmes.
“Providing households with income support rather than specific goods gives consumers greater flexibility and can improve welfare by allowing families to allocate spending according to their own priorities,” Rashad said.
However, he noted that the success of the system will depend on inflation remaining under control so that the real purchasing power of cash support does not erode rapidly.
In-kind subsidies reduce the risk of vulnerable households being left outside the support system, but with cash transfers, the danger is that some households may be exposed to poverty, he noted.
The areas where the IMF delegation might see shortfalls in the reform programme, according to Elsayed, are likely to include the pace of privatisation, reducing the role of the state in the economy and creating more room for private sector-led growth.
Madbouli held a meeting last Wednesday to follow up on plans to list a number of state-owned companies on the Stock Exchange. The meeting reviewed updates to the State Ownership Policy Document, with officials stressing that the new amendments are aimed at further strengthening the role of the private sector as a key partner in achieving sustainable economic growth.
The meeting also reaffirmed the government’s commitment to listing a number of military-affiliated companies on the exchange.
Asset sales are one of the ways that the government hopes will cover its financing needs. The country continues to face heavy debt pressures amid high borrowing costs and growing external-financing needs.
Last Thursday, Egypt raised $1 billion through an eight-year dollar-denominated social bond issuance that drew strong investor appetite.
The issuance is significant because it diversifies Egypt’s funding sources and gives the government access to a broader base of investors interested in sustainable and social finance, Elsayed explained.
It also sends a positive signal that Egypt can still access international markets.
Social bonds are debt instruments issued to raise funds for social projects such as healthcare, education, affordable housing, and social protection programmes. Elsayed warned that the positive impact of these bonds depends on whether the proceeds are used effectively for well-targeted social spending and whether they help improve the maturity structure and investor base of Egypt’s debt.
* A version of this article appears in print in the 21 May, 2026 edition of Al-Ahram Weekly
Short link: