Ahram Online-


The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to hold its penultimate meeting for 2024 on Thursday to review the key interest rates amid speculations that the CBE will keep the current interest rates unchanged despite the high inflation rates.

This decision was based on the latest macroeconomic developments on the global and local fronts, namely, the local inflation rate trends.

“We expect the CBE to keep the policy rate on hold, at 27.25 percent, as the inflation rate rose for a third time in October to 26.5 percent,” Morgan Stanley, the global investment banking leader, expected in recent research for the MPC’s Thursday meeting.

“We see inflation remaining elevated in the near term due to second-round effects of a series of energy price hikes, including the mid-October fuel price hike of 13 percent and a faster pace of currency depreciation since the end of October,” the global banking leader added.

Egypt's annual headline inflation maintained its acceleration for the third consecutive month, jumping to 26.5 percent in October compared to 26 percent in September, while the monthly headline inflation fell from 2.3 percent to 1.5 percent in September, according to the latest readings by the Central Agency for Public Mobilization and Statistics (CAPMAS).

Meanwhile, the latest CBE calculation showed that the country’s annual core inflation rate kept its downturn for the second consecutive month, reaching 24.4 percent in October, compared to 25 percent in September.

According to Morgan Stanley’s research, the bank forecasted a gradual decline in Egypt’s inflation to 25.3 percent year-on-year (YoY) in November and to 23.7 percent YoY in December, with risks slightly to the upside.

In this respect, the bank explained that the near-term inflation outlook, along with uncertainties regarding global economic policies and geopolitical developments, could lead to the continuation of the CBE’s monetary policy tightening, projecting CBE to start easing its monetary policy cycle in February.

The MPC’s final meeting for 2024 is scheduled for 26 December, while the first scheduled meeting for 2025 is expected in February.

In 2024, the CBE hiked the key interest rates by eight percent (800 bps), bringing the total hikes applied to the interest rates since it started tightening the monetary policy cycle, which began in March 2022, to 19 percent (1900 bps).

CBE’s meeting possible scenario

“The likely scenario for Thursday's meeting is that the CBE will maintain the current interest rates, as the inflation has restored its acceleration over the past few months after five consecutive months of decline. At the same time, the latest price hikes of the retail fuel products, prices of natural gas, and the anticipated increase in prices of telecommunication services will support the upward trend of inflation till the beginning of next year at least,” Banking Expert Ahmed Shawky told Ahram Online.

In related news, during the Cairo ICT event this week, the National Telecom Regulatory Authority (NTRA) announced its initial approval to raise the prices of telecommunications services in the country in response to the high operating costs facing mobile service providers.

Shawky stressed that containing inflation only through tightening monetary policy will not achieve the CBE’s targets, which have been set at seven percent (±2 percent) in the fourth quarter of 2024 and five percent (±2 percent) in the fourth quarter of 2026. Moreover, Shawky affirmed that fiscal and monetary policies must work together to contain inflation.

“The government has to direct the savings it secured from the latest hikes of fuel products to support the staples and basic commodities system in the local market. Also, a rapid social protection financing package is needed to support the purchasing power of the individuals, as well as the vulnerable,” Shawky asserted.

Further speculations

Fitch Ratings Inc. has recently upgraded Egypt’s credit rating from -B to B with a stable outlook. In its report on the country, the agency projected Egypt’s Inflation to decelerate to 12.5 percent at the end of the current FY2024/2025, ending on 30 June 2025.

This projection is supported by broad currency stability. The CBE is expected to maintain the current key interest rates until the end of 2024.

Heba Monir, financial analyst and economist at Egypt-based investment bank HC, told Ahram Online that although October’s inflation of 26.5 percent came lower than HC’s expectation of 28.5 percent despite the government increasing gasoline prices by 11–13 percent and diesel prices by 17 percent in mid-October, inflationary pressures in the local market are projected to continue as November is projected to capture the full effect of the energy price increase.

HC recently projected the CBE to keep the current key interest rates on hold.

“We also see Egypt’s carry trade as still attractive, given no expected sizable EGP devaluation until year-end and in 2025 and our estimate of positive real interest rate of 2.9 percent on Egypt’s latest 12-month average T-bill rate of 26.24 percent, net of 15.0 percent tax on US and UK investors and factoring in our inflation estimate one year from now of 19.4 percent,” she explained.

Thus, according to Monir, given the inflationary pressures and Egypt’s expected external debt repayment in November of around $4 billion based on news flow and its repayment of $1 billion of its dues to foreign oil companies in November, the MPC is anticipated to keep interest rates unchanged in its upcoming meeting.