All but one of the 16 economists surveyed expected that the bank’s monetary policy committee would keep the interest rate on deposits at 19% and on lending at 20%, but one of them expected the bank to raise interest rates by 100 basis points.
The Central Bank had reduced borrowing costs after raising the lending interest rate to 27.25% in March 2024 as part of an $8 billion financial support agreement with the International Monetary Fund in the same month, when it also reduced the exchange rate of the Egyptian pound against the dollar.
The bank halted its monetary easing cycle during its previous meeting on April 2, when it left interest rates unchanged, citing the conflict in Iran and high energy costs as justification for its cautious stance.
This conflict threatens important sources of income, such as tourism, Suez Canal fees, and remittances from Egyptians working in the Gulf countries.
Abu Dhabi Commercial Bank said in a note today that real interest rates, which remain high at around 5%, provide room to accommodate higher inflation expectations in the near term.
The bank added: “The relative stability of the Egyptian pound in recent weeks, supported by temporary capital flows, is likely to help stabilize inflation expectations and limit the rise in import prices.”
The annual inflation rate in consumer prices in Egyptian cities unexpectedly slowed to 14.9% in April from 15.2% in the previous month, and this rate is still much higher than the inflation target set by the Central Bank of between 5 and 9% by the last quarter of this year.
The central bank said last month that the conflict in Iran made this inflation target more vulnerable to upside risks.
