The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold its first meeting of the year on Thursday to discuss the future of the central bank’s key interest rates, which serve as the primary indicator for short-term interest rate trends in the local market.
This meeting comes amid differing expectations among analysts regarding the committee’s decision on interest rates. The ongoing geopolitical tensions in the region and protectionist measures affecting global trade have created uncertainty around inflation forecasts both globally and locally. Additionally, some banks operating in the local market have recently reduced interest rates on certain savings instruments.
On 26 December, the committee decided to keep the CBE’s key interest rates unchanged for the sixth consecutive time, maintaining the overnight deposit rate at 27.25%, the overnight lending rate at 28.25%, and both the main operation rate and the discount rate at 27.75%.
In March 2024, the CBE raised interest rates by 600 basis points, bringing the total hike to 1,900 basis points since it began its monetary tightening policy in 2022.
Earlier this month, the central bank reported that the annual core inflation rate dropped to 22.6% in January 2025, down from 23.2% in December 2024. The monthly core consumer price index (CPI), compiled by the CBE, rose by 1.7% in January compared to 0.9% in December.
Meanwhile, the Central Agency for Public Mobilization and Statistics (CAPMAS) reported that Egypt’s annual urban inflation rate slowed to 24% in January 2025, down from 24.1% in December 2024. However, monthly inflation increased to 1.5% from 0.2%.
In conjunction with its December 26 decision to maintain interest rates, the CBE extended the timeline for its inflation targets, aiming for 7% (±2%) by Q4 2026 and 5% (±2%) by Q4 2028. This move aligns with the CBE’s gradual transition toward a comprehensive inflation-targeting framework, allowing room to absorb price shocks without further monetary tightening and avoiding a sharp economic slowdown.
The central bank stated that since March 2024, it has implemented corrective measures to restore macroeconomic stability, successfully containing inflationary pressures and reducing overall inflation. These measures include a restrictive monetary policy and unifying the foreign exchange market, which helped anchor inflation expectations and attract foreign currency inflows.
Despite these improvements, the CBE acknowledged persistent risks to inflation, including the possibility of escalating geopolitical tensions, a resurgence of protectionist policies, and the impact of fiscal consolidation measures.
The bank expects inflation to decline significantly starting in Q1 2025, driven by the cumulative effects of monetary tightening and a favourable base effect. It anticipates inflation approaching single-digit levels by H2 2026.
According to the CBE, maintaining current interest rates remains appropriate until a significant and sustained decline in inflation is achieved, which would reinforce expectations and help meet the inflation targets. The bank emphasized that it will make decisions on the duration and intensity of monetary tightening on a meeting-by-meeting basis, taking into account evolving expectations, risks, and new data.
The central bank affirmed that it will not hesitate to use all available tools to bring inflation within target ranges by curbing demand-side inflationary pressures and containing the secondary effects of supply shocks.
A Bloomberg survey of 11 investment banks revealed mixed expectations regarding the CBE’s upcoming decision. Analysts favouring unchanged interest rates cite potential seasonal inflationary pressures during the forthcoming Ramadan period and latent inflationary risks from US President Donald Trump’s protectionist policies. On the other hand, those advocating for an interest rate cut—ranging between 100 and 200 basis points—argue that reducing borrowing costs aligns with the global trend toward monetary easing, supports declining inflation rates, and is foreshadowed by Egyptian banks’ recent reductions in savings certificate rates.
Investment banks participating in the Bloomberg survey included EFG Holding, Beltone, Naeem, Zilla Capital, CI Capital, Al Ahly Pharos, Prime, Mubasher Financial, Thndr, Cairo Capital, and Arabeya Online.
Meanwhile, a Reuters survey suggested that the CBE will likely keep its key interest rates unchanged in Thursday’s meeting, as policymakers seek clearer signs of declining inflation before considering a rate cut.
Out of 10 analysts surveyed by Reuters, six predicted that the Monetary Policy Committee would maintain interest rates, while three expected a 100-basis-point cut, and one forecasted a 200-basis-point cut.
Heba Mounir, a macroeconomic analyst at HC Securities and Investment, noted that given the external economic conditions and recent geopolitical tensions that could impact Suez Canal revenue recovery, the committee is expected to keep interest rates unchanged. She suggested that delaying a rate cut would help maintain the attractiveness of treasury bills to investors, as these factors could pressure Egypt’s foreign currency inflows amid ongoing external debt obligations and fuel import costs.
Prominent banking expert Mohamed Abdel Aal argued that the most suitable monetary policy option would be to maintain the current rates—27.25% for deposits and 28.25% for lending—to allow more time to assess global and regional developments.
However, Abdel Aal added: “If there is a split between maintaining or lowering rates, I hope to see a rate cut of 200 to 300 basis points in the upcoming meeting or the following one. The extended inflation target timeline allows for a gradual approach while considering the favourable base effect.”
He acknowledged that while the current 24% inflation rate remains far from the target, now might be the right time to balance economic growth objectives with inflation control efforts.
Abdel Aal also emphasized that if the committee opts for a rate cut, it should not be interpreted as a complete shift from monetary tightening to an accommodative policy. Instead, any cuts should be gradual and experimental, given global uncertainty. The CBE will continue to rely on contractionary monetary tools until inflation reaches its targets.
According to Abdel Aal, three key factors could influence the committee’s decision: ongoing geopolitical risks in the Middle East, pressure from the International Monetary Fund to maintain restrictive fiscal and monetary policies, and the potential inflationary effects of upcoming social support packages, wage hikes, and rising commodity prices.
He explained that maintaining current interest rates would signal the CBE’s intention to further tighten liquidity to combat inflation while mitigating potential local or global inflationary waves. However, such a decision could also put additional pressure on economic growth by increasing borrowing costs for the government and private sector, raising public debt financing expenses, expanding the budget deficit, and maintaining high interest rates, which sometimes stem from fiscal consolidation measures.
Conversely, Abdel Aal noted that an interest rate cut would stimulate economic growth, reduce debt burdens on the government and private sector, and encourage local production for domestic consumption and exports. However, he warned that this could also pose risks, such as renewed inflationary pressures, currency instability, and a decline in foreign portfolio investment inflows.
