CBE February meeting: Will rates remain unchanged or does a cut await?

Expert and observer expectations are split on whether the committee will maintain current interest rates or implement a minor cut due to the downward trajectory of the inflation trend over the past few months.

Ramona Moubarak, director of Middle East and North Africa (MENA) Country Risk at BMI Research, a Fitch Solutions company, told Ahram Online that she anticipates the CBE will maintain current interest rates in the upcoming meeting.

“This is for several reasons, including that the inflation rate did not significantly decline over the last six months, and the decline was not sustained as price growth was higher between August and October. Inflation remains significantly above the CBE’s 5-9 percent targets," Moubarak explained.

Inflation downturn
 

Egypt’s headline inflation rate hit a two-year low of 23.2 percent in January 2025, and urban inflation decelerated to 24 percent from 24.1 percent in December 2024, according to Central Agency for Public Mobilization and Statistics (CAPMAS) figures.

In tandem, the CBE's latest calculation shows core inflation dropped to 22.6 percent in January 2025, down from 23.2 percent in December 2024, maintaining a five-month decline.

Additionally, Prime Minister Mostafa Madbouly recently stated that inflation rates in Egypt are likely to continue their decline in February. The calculations for February's inflation will be published on 10 March.

CBE to hold interest rates steady
 

“Given the messaging in the latest MPC press releases, we believe that the CBE will wait until after the February inflation print is released in early March, when significant base effects push inflation towards 14-15 percent, to start its cutting cycle," Moubarak told Ahram Online.

"Additionally, given the uncertainty about US trade policies and their inflationary impact, as well as the recent weakening of the Egyptian pound, we think the CBE will deduce that the balance of risks is elevated and will refrain from cutting the rates at this stage," she added.

Room for a cut
 

However, Moubarak did not dismiss the possibility that the CBE could implement a 1-2 percent cut this week.

“We see a case for the CBE to cut the rates this week by about 100 to 200 basis points. The CBE might perceive that the inflation rate did decline from 35.7 percent year-over-year (YoY) in February 2024 to 24 percent YoY in January 2025, and will fall by about 10 percent in February," she said. "At the same time, the exchange rate is affected by the return on the EGP-denominated T-bills rather than policy rates, and given the recent increase in yields, we think that this would allow the CBE to cut the rates with limited implications for the currency."

She also points out that the real policy rate, which will hit about 13 percent in February based on current rates, needs to be reduced to support the real economy.

“The successful issuance of eurobonds in early February at a yield of up to 10 percent could encourage the CBE to lower the policy rates. Finally, given that fuel prices will likely rise in April, which will somewhat raise price growth, it is possible that the CBE will cut in February and April to spread the hikes over the course of the year and allow for a pause in May to assess the increases in prices," Moubarak further explained.

Inflation to decline
 

Moubarak expected inflation to average 16.3 percent in 2025, down from 28.3 percent in 2024. The base effects will offset the inflationary impact of fuel and electricity price increases similar to those in the corresponding months of 2024.

Expect a cut, but not yet
 

Mohamed Fouad, an economic expert and member of an advisory committee to the Cabinet, expects the MPC to maintain the current interest rates.

“⁠Up until two weeks ago, it was possible to reduce interest rates by 1.5-2.5 percent, but new factors have emerged, such as the rise in the bond market yield, strengthening USD prompting heavier-than-usual foreign exchange outflows on the secondary market, and the geopolitical pressures," Foud told Ahram Online.

He also pointed out the sticky decline in Egypt's inflation rates, stressing that the ongoing geopolitical developments signal a definitive hold in the upcoming meeting.

Fouad also projected that the MPC would cut key interest rates by 6-7 percent (600-700 bps) throughout 2025. He explained that the market is signalling a 150-250 basis points reduction, as evidenced by the falling certificates of deposit (CD) rates at commercial banks and T-bill rate auction results.

“As for inflation, while Morgan Stanley’s base forecast estimates that Egypt’s inflation rate will drop to 14.5 percent by the end of 2025, this remains lower than the local market consensus, which expects inflation to settle between 16 and 18 percent," he added.