The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) opted at its 24 May meeting to keep interest rates unchanged, a move widely anticipated by experts as inflationary pressures linger amid geopolitical uncertainty.
Inflation in Egypt is no longer driven solely by domestic demand. Imported inflation driven by elevated energy prices, shipping and trade disruptions, and dollar volatility is now a major factor, said banking expert Hani Abul-Fotouh, noting that as a result increasing interest rates would not have been the right decision to take.
He pointed out that while high interest rates can help protect the pound and anchor inflation expectations, they also weigh heavily on investment, production, and finance. For this reason, while growth looks relatively solid, industrial activity remains weak.
Planning Minister Ahmed Rostom said preliminary estimates show the economy expanding by five per cent in the first quarter of this year, up from 4.8 per cent a year earlier, defying earlier forecasts of a slowdown to 4.6 per cent amid war-related shocks.
Other government sources attributed faster GDP growth in the current fiscal year to gradual recovery of the Suez Canal, hospitality, and construction sectors.
A statement issued by the CBE said growth is projected to slow down, trimming expectations to 4.9 per cent this year and 4.8 per cent next year, down from earlier forecasts of 5.1 per cent and 5.5 per cent.
Abul-Fotouh suggested the CBE was “buying time” and prioritising stability over optimism, mindful of Egypt’s $163 billion external debt and a public debt ratio of 83.8 per cent of GDP.
“Any rate hike would inflate government liabilities,” he said. Experts say that a one per cent increase in interest rates would add at least LE4 billion in interest payments on local debt.
The decision left overnight deposit and lending rates at 19 and 20 per cent, respectively, with the main operation rate at 19.5 per cent. The CBE justified its stance as consistent with inflation dynamics in an uncertain global environment.
Mohamed Hassan, managing director of Alpha Financial Investments, called the move logical, even as headline inflation eased slightly in April to 14.9 per cent from 15.2 per cent in March.
“A rate hike would raise costs for businesses, which would then pass them on to consumers, fuelling inflation,” he said.
Inflationary pressures have moderated, with monthly inflation slowing to 1.1 per cent in April from 3.2 per cent in March, thanks to reduced transport and healthcare costs. However, the CBE expects renewed acceleration later this year, lifting its annual forecast to an average of 17 per cent due to the Iran war’s impact on energy and commodity prices.
Meanwhile, the banks have raised yields on fixed-rate savings certificates to absorb liquidity, with the National Bank of Egypt and Banque Misr together with four private-sector banks hiking returns this month to their highest in a year.
Cairo University economist Alia Al-Mahdi warned that if inflation climbs towards 17 per cent, the CBE may be forced to raise rates despite the burden on public debt. For now, she said, “holding rates steady remains the least damaging option.”
UK-based macroeconomic research house Capital Economics said the CBE’s decision was correctly anticipated by most analysts.
It noted that while Egypt is among the most vulnerable emerging markets to spillovers from the Iran war, with the pound weakening by around 10 per cent against the dollar since the start of the year, the inflationary impact of the weaker currency looks relatively contained.
“By allowing the pound to adjust gradually, this will prevent a build-up of macro imbalances and potentially disorderly adjustment of the currency down the line,” it said.
It ruled out a hike in interest rates soon. “We remain of the view that the overnight deposit rate will stay at 19 per cent for the next couple of months, with the possibility of cuts coming back on to the agenda if energy prices were to fall,” it said.
* A version of this article appears in print in the 28 May, 2026 edition of Al-Ahram Weekly.
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