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Egypt's Central Bank Expected to Raise Interest Rates by 100 Basis Points

A Reuters poll forecasted that the central bank will raise its overnight deposit rate by 100 basis points (bps) as it tries to dampen resurgent inflation. (Reuters)
A Reuters poll forecasted that the central bank will raise its overnight deposit rate by 100 basis points (bps) as it tries to dampen resurgent inflation. (Reuters)
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Egypt's Central Bank Expected to Raise Interest Rates by 100 Basis Points

A Reuters poll forecasted that the central bank will raise its overnight deposit rate by 100 basis points (bps) as it tries to dampen resurgent inflation. (Reuters)
A Reuters poll forecasted that the central bank will raise its overnight deposit rate by 100 basis points (bps) as it tries to dampen resurgent inflation. (Reuters)

Experts and economists agreed that the Central Bank of Egypt (CBE) will raise interest rates during its meeting on Thursday but did not agree on the rate hike.

A Reuters poll forecasted that the central bank will raise its overnight deposit rate by 100 basis points (bps) as it tries to dampen resurgent inflation.

The median forecast in a poll of 15 analysts is for the bank to raise its deposit rate to 12.25% and its lending rate to 13.25% at its regular monetary policy committee meeting.

The committee will meet a day after a meeting of the Federal Reserve, which is expected to raise US interest rates.

The CBE kept its rates on hold at its last two meetings, on June 23 and August 18, but raised them by 200 bps in May, saying it was seeking to contain inflation expectations after prices surged by their fastest in three years.

“A continued rise in inflation and in parallel Egyptian pound weakness warrant further monetary tightening,” said Mohamed Abu Basha of EFG Hermes.

Cairo’s annual urban consumer inflation quickened to 14.6% year-on-year in August from 13.6% in July, while core inflation rose to 16.7% from 15.6%.

The central bank has an inflation target range of 5-9%, but in June said it would tolerate a higher level until after the fourth quarter.

Not all analysts expect a rate hike.

Wael Ziada of Zilla Holding said most of the economic shock to Egypt has been external and has already been reflected in the domestic inflation rate. Any interest rate increase would have little effect on inflation.

“External variables with regard to oil prices and the food price index may indicate that the worst in terms of importing inflation has passed,” he added.

HC Securities and Investment expected the CBE to gradually raise the overnight deposit and lending rates by 100 bps in the coming meeting and then raise it by another 100 bps in the following meeting.

Financials analyst and economist at HC, Heba Monir commented: “The annual August inflation is the highest recorded since May 2019, as the pricing of imported commodities at a higher exchange rate and supply bottlenecks negatively impacted it.”

At these levels, the annual inflation rate is well above the CBE's pre-announced target of 7% (+/-2% for Q4 2022), and the HC estimates it to average 14.3% until the end of the year.

Regarding Egypt's external position, Monir said the HC believes that pressure is accumulating.

Currently, Egypt offers a real yield on 12-month T-bills of 208 bps (given the current 12-month T-bills rate, HC’s 12-month inflation estimate of 12.25%, and a 15% tax rate for European and US investors) compared to a real return on the US 1-year notes of negative 245 bps (given 1-year notes yield of 3.83%, Bloomberg average 12 million inflation estimate of 6.28%, and assuming no taxes).

Based on HC’s assumptions and calculations, Egyptian 12-month T-bills need to increase in 2022 to 17.3% from 16.9% currently to remain attractive, Monir stressed.

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Saudi Inflation Holds Steady in May as Rents Remain Key Driver

Aerial photo of the Saudi capital Riyadh (SPA) 
Aerial photo of the Saudi capital Riyadh (SPA) 
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Saudi Inflation Holds Steady in May as Rents Remain Key Driver

Aerial photo of the Saudi capital Riyadh (SPA) 
Aerial photo of the Saudi capital Riyadh (SPA) 

Saudi Arabia’s annual inflation rate remained stable at 2.2 percent in May 2025, maintaining a pace close to the 2.3 percent recorded in April. The continued stability in prices signals a relative balance in inflationary pressures, despite ongoing increases in housing costs.

This resilience comes amid global economic volatility, reflecting the effectiveness of Saudi Arabia’s fiscal and monetary policies, particularly in controlling energy and rental prices. The monthly Consumer Price Index (CPI) saw a slight uptick of just 0.1 percent.

According to the General Authority for Statistics (GASTAT), the annual inflation rate for May was driven primarily by rising housing-related costs. Prices in the housing, water, electricity, gas, and fuel sector increased by 6.8 percent compared to the same period last year. Food and beverage prices climbed by 1.6 percent, while personal goods and services saw a 4 percent rise.

Residential rents remained the most significant contributor to inflation, continuing their upward trend and exerting substantial influence on the general index. Despite this, the Kingdom’s inflation rate remains among the lowest in the G20.

Commenting on the data, Dr. Abdullah Al-Jassar, a member of the Saudi Association for Energy Economics, told Asharq Al-Awsat that Saudi Arabia’s inflation levels remain comparatively low on a global scale. He said the current rate reflects the flexibility and discipline of the national economy, noting that price increases have been modest and largely under control.

Al-Jassar attributed this to effective government policies that have helped shield both the market and consumers from external shocks.

He emphasized that the inflation observed is a result of real economic activity rather than external disruptions or internal imbalances. One of the most effective tools in curbing inflation, he said, has been the government’s decision to stabilize local energy prices, even as global oil prices surged. Since fuel plays a crucial role in the production, transport, and distribution of goods and services, this policy has prevented cost increases from spilling over into other sectors such as food, construction, and housing.

Al-Jassar described this approach as a “smart policy” that successfully absorbed global inflationary shocks before they reached the end consumer.

Although residential rents jumped 8.1 percent year-on-year, he noted that the rise was gradual and primarily driven by strong demand and limited supply. He also pointed out that the Saudi riyal’s peg to the US dollar has helped protect the economy from imported inflation and reduce the cost of importing goods.

Increased competition, tighter price monitoring, and the growing presence of e-commerce were also cited as factors contributing to market stability and limiting price manipulation across various sectors.

Looking ahead, Al-Jassar suggested inflation could see a slight increase in the second half of 2025, potentially rising to between 2.5 and 3 percent. He attributed this potential uptick to seasonal factors or changes in global commodity prices. Additionally, if the US Federal Reserve moves to cut interest rates, this could lead to looser monetary policy in Saudi Arabia, boosting liquidity and consumption—factors that might put upward pressure on prices. However, he stressed that there are currently no signs of any sharp or unexpected inflationary surges.

In April 2025, the inflation rate stood at 2.3 percent, also led by a 6.8 percent rise in housing and related costs. Food and beverages saw a 2.2 percent increase, while personal goods and services were up 3.5 percent.

Month-on-month data showed that while May’s CPI rose by just 0.1 percent, residential rents continued to rise, helping push housing-related prices up by 0.3 percent. Actual rents for residences alone increased by 0.4 percent. Food and beverages inched up by 0.1 percent, while personal goods and services rose by 0.5 percent. Tobacco prices edged up by 0.2 percent.