Central Bank of Egypt holds fire in May

At its meeting on 23 May, the Central Bank of Egypt (CBE)'s Monetary Policy Committee decided to keep the overnight deposit, overnight lending, main operations, and discount rates unchanged at record highs of 27.25%, 28.25%, 27.75% and 27.75%, respectively. The hold followed 1,900 cumulative basis points of increases since March 2022 and met market expectations.

The CBE’s decision to hold came as its past rate hikes have begun to bear fruit: Both headline and core inflation rates declined through April from their peaks in September 2023 and June 2023, respectively. This easing of inflationary pressures—despite a temporary surge in February 2024 and a weaker pound since early March—has been driven by favorable base effects, monetary policy tightening, the unification of the black and official foreign exchange markets, and improved external financing conditions. All these factors also contributed to the CBE’s decision to cut its inflation forecasts for July–December 2024 in its latest batch of projections.

The Central Bank of Egypt provided no explicit forward guidance. Instead, it stated that upside risks to the inflationary outlook remain and the path of future policy rates will depend on inflation expectations rather than historical data. It emphasized its readiness to use all available tools to ensure that the monetary stance remains sufficiently restrictive to support a sustained decline in inflation and to maintain price stability over the medium term. The next meeting is scheduled for 18 July. Around half of our panelists expect the Bank to stay put through December 2024. The other half is split: Some see room for further hikes, while the rest expect the CBE to kick off its loosening cycle.

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