The ongoing US-Israeli war on Iran has reshaped regional risk dynamics, driving up energy prices, strengthening the US dollar, and increasing global financing costs, while Egypt seeks to maintain a delicate balance between containing inflation, supporting economic activity, and preserving the attractiveness of the Egyptian pound and local debt instruments.
Against this backdrop, most analysts expect the CBE to keep interest rates unchanged at its upcoming meeting, despite a relative slowdown in inflation and continued signs of weaker economic activity.
Inflation eases, but risks remain
At first glance, the inflation picture appears relatively reassuring. Inflation is no longer hovering at the record levels seen during the peak of Egypt’s currency crisis in 2024, while several indicators have shown a gradual easing in price pressures.
However, a deeper reading suggests the risks are far from over.
The CBE recently raised its forecast for average annual inflation in 2026 to a range of 16-17 percent, compared with 27.4 percent last year, before expecting it to decline further to between 10 and 13 percent in 2027.
Even so, these levels remain well above the CBE’s official target of seven percent (±2 percent ), plus or minus two percentage points, by the fourth quarter of 2026.
In a recent report, the CBE explicitly warned that the outbreak of the conflict involving Iran and the United States had worsened global economic expectations, noting that any additional energy shock could push inflation above the baseline scenario.
Has the easing cycle ended?
The key question in markets is no longer limited to Thursday’s decision itself, but rather whether Egypt’s monetary easing cycle has effectively come to an end.
The CBE had begun reducing borrowing costs after previously raising its overnight lending rate to 27.25 percent in March 2024 as part of Egypt’s $8 billion financial support agreement with the International Monetary Fund (IMF), alongside the devaluation of the Egyptian pound.
However, the central bank paused the easing cycle during its previous meeting on 2 April, citing the conflict involving Iran and rising energy costs.
High uncertainty persists
Speaking to Ahram Online, Mohamed Abou Basha, head of Macroeconomic Analysis at EFG Hermes Research, said expectations continue to favour holding rates steady.
He noted that inflation levels remain “reasonable relative to surrounding circumstances,” but stressed that uncertainty remains elevated, making it likely that the central bank will maintain its wait-and-see approach.
Exchange rate pressures and pound attractiveness
One of the main factors pushing the CBE toward caution is the situation in the foreign exchange market and foreign capital flows.
Ratings agency Fitch said in a recent report that Egypt’s flexible exchange rate helped the country absorb the impact of the Iran war on foreign reserves and its sovereign credit profile.
According to Fitch, the Egyptian pound has weakened by around 10 percent against the dollar since the end of February following capital outflows exceeding $10 billion.
Despite the depreciation, the central bank did not intervene directly to support the currency, helping preserve foreign reserves and maintain relative stability in dollarization levels within the domestic market.
Holding rates seen as protecting monetary stability
In comments to Ahram Online, banking expert Ahmed Shawky said the most likely scenario at Thursday’s meeting is for the CBE to keep rates unchanged at 19 percent for deposits and 20 percent for lending.
He noted that the central bank had already opted for caution during its previous meeting despite the relative slowdown in inflation.
According to Shawky, several factors support maintaining rates, most notably fears that inflation could accelerate again due to higher fuel and energy prices, alongside the possibility of rising global import costs.
He also warned that raising interest rates under current inflation conditions would significantly increase financing costs for companies and add to the government’s debt-servicing burden, particularly as interest payments already represent the largest component of public expenditure.
At the same time, Shawky argued that holding rates steady would help maintain attractive returns on savings certificates and other local savings instruments, while also supporting relative exchange rate stability, even if borrowing costs remain high for businesses and the private sector.
Economic slowdown pushes in the opposite direction
On the other hand, some analysts argue that keeping rates elevated for too long could deepen the ongoing economic slowdown.
The S&P Global Purchasing Managers’ Index (PMI) for Egypt’s non-oil private sector fell to 46.6 points in April 2026 from 48 points in March, marking its lowest reading since January 2023 and signalling a continued contraction in private sector activity for the second consecutive month.
The central bank has also lowered its GDP growth forecasts to 4.9 percent for the current fiscal year and 4.8 percent for FY2026/2027, which starts on 1 July 2026, down from earlier projections, citing weaker performance in manufacturing and services as well as slowing external economic activity.
Weak demand limits pricing pressures
In this context, Salma Hussein, head of research at Naeem Brokerage, told Ahram Online that the ongoing slowdown in economic activity further strengthens expectations that the central bank will leave interest rates unchanged, especially amid weak domestic demand despite easing inflation.
She explained that regulatory measures and spending rationalization policies implemented over the past period contributed to slowing economic activity, making it harder for businesses to sell products and reducing market momentum.
As a result, companies are no longer able to easily pass rising costs on to consumers, despite persistent pressures related to energy prices, exchange rates, and raw material costs.
Hussein noted that annual core inflation slowed to 13.8 percent in April from 14 percent in March, while monthly inflation eased to 1.1 percent compared with 2 percent in March. Headline annual inflation also edged down to 13.4 percent from 13.5 percent in the previous month.
In her view, these indicators support the argument that the central bank may prefer to maintain monetary stability until the regional and global outlook becomes clearer.
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