Egypt’s central bank has held interest rates steady, pausing its easing cycle as inflation resurges and geopolitical tensions threaten to derail its fragile disinflation path.
The Central Bank of Egypt (CBE) on Thursday kept its overnight deposit rate at 19%, lending rate at 20%, and main operation and discount rates at 19.5%, signaling a renewed commitment to tight monetary policy.
In its statement, the Monetary Policy Committee (MPC) said, “This decision reflects the Committee’s assessment of prevailing inflation dynamics and the evolving outlook.”
The bank stressed that it has “opted to pause the easing cycle and adopt a wait-and-see approach, deciding to keep the CBE key policy rates unchanged to preserve the tight monetary policy stance, given the adequately positive real interest margin.”
That, it said, “will help ensure inflation expectations remain anchored, pressures are contained, and disinflation is restored.”
The decision marks a turning point in Egypt’s monetary trajectory, which had shifted towards easing following a prolonged period of aggressive tightening that placed borrowing costs among the highest in frontier African markets.
At the peak of that tightening cycle in late 2024, the central bank held the overnight deposit rate at 27.25%, the lending rate at 28.25%, and the main operation rate at 27.75%, with the discount rate also at 27.75%. Those elevated levels were part of a broader effort to tame inflation and stabilize the currency following severe macroeconomic shocks.
Inflation had surged to around 38% in September 2023, driven largely by currency depreciation and supply disruptions. Although price pressures eased to an average of 26% in the final quarter of 2024, the decline remained uneven and vulnerable to external shocks.
By late 2025, the improving inflation outlook allowed the CBE to cautiously pivot. In December 2025, the MPC cut rates, bringing the deposit rate to 20% and the lending rate to 21%, while lowering the main operation and discount rates to 20.5%. A further cut followed, reducing rates by another percentage point to current levels.
At the time, policymakers framed the easing cycle as consistent with anchoring expectations while supporting a gradual return of inflation towards its target of 7% (±2 percentage points) by the fourth quarter of 2026. Inflation risks return as geopolitical tensions bite. That trajectory has now been disrupted.
Fresh data from the Central Agency for Public Mobilization and Statistics (CAPMAS) shows that urban headline inflation rose to 13.4% in February from 11.9% in January — the first acceleration since October 2025. Core inflation followed a similar pattern, increasing to 12.7% from 11.2%.
On a monthly basis, urban inflation jumped to 2.8%, up sharply from 1.2% in the previous month, underscoring renewed price pressures.
The central bank acknowledged that February’s inflation “exceeded (its) typical seasonal patterns,” pointing to a rise in education-related costs, including school and university fees.
It also noted that “volatile food prices ticked up reflecting usual Ramadan dynamics, even as other food items remained stable.”
While such seasonal factors are not unusual, their coincidence with broader external pressures has heightened concern within the MPC.
The bank now concedes that the inflation outlook has become increasingly uncertain. It warned that “the inflation path and subsequently the CBE’s target of 7 percent (± 2 p.p.) on average, in Q4 2026 have become increasingly susceptible to upside risks, subject to a prolonged conflict and a higher-than-expected pass-through from fiscal consolidation measures.”
At the heart of these risks lies the escalating Middle East conflict, particularly the Iran-US war and its regional spillovers, which have begun feeding into Egypt’s domestic economy.
According to the CBE, these pressures “have manifested domestically through fiscal consolidation measures and depreciation in the exchange rate, which continues to serve as a primary shock absorber, effectively mitigating the impact of the energy shock on domestic economic activity and external buffers.”
In effect, while exchange rate flexibility is cushioning the external shock, it is also transmitting inflation into the domestic economy — intensifying the policy dilemma.
Egypt is not alone in adopting a cautious stance. Across Africa, central banks in Angola, Morocco, Mozambique and South Africa have also paused rate adjustments in March, reflecting a broader pattern of policy caution amid heightened global uncertainty.
For Egypt, however, the stakes are particularly high. The country’s macroeconomic stability hinges on its ability to sustain disinflation while managing external vulnerabilities, including energy price shocks, exchange rate pressures and capital flow volatility.
The decision to hold rates underscores a recognition that premature easing could destabilise inflation expectations and weaken confidence in the currency.
