The Central Bank of Egypt’s (CBE) Monetary Policy Committee will hold its fifth meeting of the year on Thursday to decide on its key interest rates, a major indicator of the near-term direction of interest rates on the Egyptian pound, amid strong expectations that rates will remain unchanged for a fourth consecutive meeting. The committee decided on 9 July to maintain the overnight deposit rate at 19%, the overnight lending rate at 20%, and the main operation and discount rates at 19.5%, marking its third consecutive hold following similar decisions on 2 April and 21 May. The CBE said the decision was consistent with its assessment of the latest inflation developments and outlook. Core inflation rises Earlier this month, the CBE reported that annual core inflation rose to 14.7% in July 2026 from 14.3% in June. The CBE’s core Consumer Price Index recorded zero monthly inflation in July, compared with negative 0.3% in July 2025 and 0.3% in June 2026. The urban Consumer Price Index, published by the Central Agency for Public Mobilisation and Statistics (CAPMAS), also recorded zero monthly inflation in July 2026, compared with negative 0.5% in July 2025 and negative 0.4% in June 2026. On an annual basis, urban headline inflation rose to 14.9% in July from 14.3% in June. At its 9 July meeting, the MPC expected annual headline inflation to accelerate through the third quarter of this year, albeit at a slower pace than it had anticipated in May, supported by favourable developments in the foreign exchange market and a broad-based easing of inflationary pressures. The committee said these developments should help contain the unfavourable base effect during the third quarter. Inflation is subsequently expected to follow a gradual downward trajectory, reaching single-digit levels and approaching the CBE’s target of 7% ±2 percentage points during the second half of 2027. The CBE said the expected inflation path is supported by maintaining an appropriately restrictive monetary policy stance to anchor medium-term inflation expectations. However, it cautioned that the inflation outlook remains subject to upside risks, particularly an escalation of regional conflict, which could undermine the recent improvement in risk indicators and increase uncertainty. Real interest rates The MPC said its decision to keep key interest rates unchanged was aimed at maintaining an adequately positive real interest rate, on average, over the forecast horizon, supported by macroeconomic developments that had proved more favourable than expected at its previous meeting. The committee reiterated that it would continue to assess monetary conditions in light of new economic developments, the factors driving inflationary pressures and the expected inflation trajectory, taking into account surrounding risks. It said it would not hesitate to take the necessary measures to reinforce monetary tightening to preserve price stability and ensure inflation returns to its target in the near term. Mohamed Abdel Aal Monetary policy outlook Senior banking expert Mohamed Abdel Aal expects the CBE to keep interest rates unchanged on Thursday, saying the recent increase in inflation does not appear sufficient on its own to alter the direction of monetary policy. Abdel Aal said the rise in annual inflation to 14.9% from 14.3% in July could largely reflect a base effect and does not necessarily indicate a broad-based increase in the prices of goods and services. He noted that MPC decisions are not based on a single month’s reading, but rather on a range of indicators, particularly trends in headline and core inflation, exchange-rate stability, and broader economic and geopolitical developments. Abdel Aal said a sustained series of higher inflation readings could prompt policymakers to reassess their stance, while a gradual decline would support the possibility of resuming the rate-cutting cycle in the future. He expects the CBE to maintain a wait-and-see approach until the end of the year unless there are significant changes in the factors affecting inflation, exchange rates and global markets. Abdel Aal also expects inflation to end 2026 at around 13%-14%, ruling out a return to single-digit levels this year. Egypt’s external position Heba Mounir, macroeconomic analyst at HC Securities & Investment, also expects the MPC to leave interest rates unchanged on Thursday due to increasing inflationary pressures. Mounir said Egypt’s external position remains relatively resilient despite recurring regional geopolitical disruptions, adding that exchange-rate flexibility has helped mitigate pressures during periods of regional conflict. Heba Mounir However, she pointed to domestic challenges arising from the conflict, particularly higher local energy costs, which are weighing on the government’s efforts to meet its budget targets. She noted that the government kept electricity tariffs unchanged for the lowest household consumption bracket while raising them by around 12% for other residential brackets, which is expected to add to inflationary pressures during the third quarter of 2026. Mounir therefore expects inflation to average around 16% during the current quarter, compared with approximately 15% in the second quarter. Policymakers await renewed decline in inflation Economists polled by Reuters also expect the CBE to keep its key interest rates unchanged on Thursday for a fourth consecutive meeting, as policymakers wait for inflation to resume its downward trend before cutting borrowing costs again. All 13 economists surveyed by Reuters expect the CBE to maintain the overnight deposit rate at 19% and the overnight lending rate at 20%, extending the pause in rate changes that began earlier this year following a prolonged monetary easing cycle. The unanimous forecast underscores market expectations that the CBE will leave rates unchanged. Daniel Richards of Emirates NBD said that although annual urban inflation accelerated in July, the monthly figures indicated little fresh inflationary pressure. He expects annual inflation to peak in August before declining thereafter, allowing the CBE to keep rates unchanged for the remainder of the year before resuming monetary easing in 2027. Richards said Egypt raised electricity tariffs for most consumption brackets by an average of 12% last month, with the impact expected to feed into the August inflation reading. The post CBE to decide on EGP rates Thursday amid strong expectations of fourth consecutive hold first appeared on Dailynewsegypt.
