The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) explained the rationale behind its decision to leave key policy interest rates unchanged for the third consecutive meeting, saying the move reflects its assessment of recent inflation developments and the outlook since its previous meeting.
At its meeting last Thursday, the Committee decided to maintain the overnight deposit rate at 19.00%, the overnight lending rate at 20.00%, and the rate of the main operation at 19.50%. The discount rate was also left unchanged at 19.50%.
The MPC said the decision was based on its evaluation of the latest inflation trends and projections, while taking into account domestic and global economic conditions.
Globally, the Committee noted that economic activity continues to expand at a slower pace, constrained by geopolitical tensions, persistent uncertainty surrounding trade policies, and weak global demand. Although inflation has eased across many economies, inflationary pressures remain, albeit to varying degrees, prompting central banks to maintain cautious monetary policy in line with domestic economic conditions.
Regarding commodity markets, the Committee said energy prices have recently increased amid heightened uncertainty following the regional conflict, after partially retreating from earlier gains. Agricultural commodity prices, meanwhile, have shown mixed trends, reflecting varying supply and demand conditions across global markets. Consequently, the global outlook remains exposed to elevated risks, including the escalation of regional conflicts, tighter global financial conditions, and continued supply chain disruptions.
On the domestic front, the Committee said the CBE’s preliminary estimates indicate a slight moderation in real GDP growth during the second quarter of 2026, reflecting the adverse impact of the regional conflict on economic activity. This follows a modest slowdown to 5% growth in the first quarter of 2026.
Accordingly, the CBE expects real GDP growth to average around 5% during the 2025/2026 fiscal year. Economic activity is expected to remain below its potential level, although it is projected to gradually converge towards potential by the first half of 2027. As a result, the current output gap suggests that demand-side inflationary pressures will remain limited over the short term.
On inflation, the Committee noted that annual headline inflation declined to 14.3% in June 2026, while monthly inflation recorded a notable decline of negative 0.4%.
Annual core inflation edged up slightly to 14.3%, reflecting an unfavourable base effect, despite monthly core inflation easing to 0.3% compared with the previous month.
The MPC said both headline and core inflation readings came in below their typical seasonal patterns, reflecting the gradual fading of previous seasonal shocks.
Looking ahead, the CBE’s projections indicate that annual headline inflation will continue to accelerate until the third quarter of 2026, although at a slower pace than the Committee had anticipated at its May 2026 meeting.
The expected trajectory is supported by favourable developments in the foreign exchange market, together with a broad easing of inflationary pressures. These factors are expected to mitigate the impact of unfavourable base effects during the third quarter of 2026.
The Committee added that inflation is projected to resume a gradual downward trajectory thereafter, reaching single-digit levels and approaching the CBE’s target range of 7% (±2%) during the second half of 2027.
According to the MPC, this expected inflation path is underpinned by maintaining an appropriately restrictive monetary policy stance that helps anchor medium-term inflation expectations. However, it cautioned that the outlook remains subject to upside risks, particularly any further escalation of the regional conflict, which could reverse recent improvements in risk indicators and increase uncertainty.
Against this backdrop, the Committee said it decided to keep policy interest rates unchanged in order to maintain an appropriately positive real interest rate, on average, over the forecast horizon, supported by macroeconomic developments that have been more favourable than anticipated at its previous meeting.
The MPC also stressed that it will continue to assess monetary conditions in light of incoming economic data, the factors driving inflationary pressures, and the expected inflation path, while taking surrounding risks into consideration.
It reaffirmed that it stands ready to take any measures necessary to reinforce monetary tightening, preserve price stability, and ensure that inflation returns to its target level in the near term.
