War clouds Egypt’s interest-rate path
Interest-rate expectations are not an elite debate for economists alone. They affect the pockets of millions, from holders of consumer loans to those hurt by inflation.
Most analysts agree the Central Bank of Egypt is likely to keep interest rates unchanged at its next meeting on Thursday, May 21. But they differ over where rates are headed through the rest of the year amid uncertainty created by the US war on Iran.
The central bank’s Monetary Policy Committee may have seen heated debate in recent days, as the war has disrupted the monetary-easing plan. Nothing illustrates that more clearly than the central bank’s revision of its inflation forecasts since the war. So where are rates headed in 2026?
Consensus on no change
Under normal conditions, the central bank would have been expected to resume its rate-cutting path this month, known as monetary easing. Instead, it is expected to repeat the decision it made in April, the second month of the war on Iran, and leave rates unchanged at its next meeting on May 21.
Current conditions, the fallout from the war, and the risk of higher inflation make it necessary to freeze the rate-cutting cycle, Esraa Ahmed, macroeconomic analyst at Thndr Securities, told Al Manassa.
The central bank began its monetary-easing cycle in April 2025, lowering rates from the extremely high levels they had reached over the previous two years, which had sharply raised financing costs across broad sectors, from consumers to industry.
Aya Zoheir, head of research at Zilla Capital, said April’s inflation reading offers further support for the Egyptian central bank’s wait-and-see approach, which it signaled at the last meeting of the Monetary Policy Committee.
Inflation declined in April, despite pressures from the US war on Iran continuing for a second month, defying analysts’ expectations that it would rise. The central bank uses the interest rates it applies in dealings with banks as a tool to control inflation under what are known as monetary policy tools.
Economist Mostafa Shafie told Al Manassa the central bank faces no pressure to rush into cutting rates in May after inflation fell in April. It still has time to assess the inflation path under the current volatile conditions.
Shafie said the central bank is betting on time. The Monetary Policy Committee still has several meetings left this year, giving it room to monitor price developments before making any new rate decisions.
Rate-hike scenarios
Expectations that rates will be held in May do not rule out the possibility of reversing the easing trend and raising them later in the year. Ahmed does not rule out a rate hike if conditions become more complicated, whether in terms of inflation, the foreign-exchange market, or prolonged geopolitical tensions.
The United States and Iran have yet to reach an agreement to end the war, which has been ongoing since late February. That has deepened uncertainty over global commodity prices, especially petroleum products and fertilizers, much of which pass through the Strait of Hormuz, which Iran has controlled since the war began.
Although the central bank has room to keep current interest rates in place because inflation has not responded strongly to war pressures, it may be forced to raise rates this year if inflationary pressures intensify, Zoheir said.
The central bank raised its estimate for average inflation in 2026 to 16-17% from 11%
“Real interest rates are currently at relatively comfortable levels, estimated at about 4.5% based on April inflation. But any new increases in fuel prices could erode real rates, bringing them closer to 1-2%, which could push the central bank to reconsider its monetary stance,” Zoheir told Al Manassa.
The government was forced to apply a surprise fuel-price increase in March after the global price of Brent crude rose above $100 a barrel. Experts see the possibility of new increases in the coming period, with expectations that Brent may struggle to return to prewar levels.
The central bank’s own forecasts reflect that concern. In its monetary policy report for the first quarter of 2026, it raised its average inflation forecast for the year to 16-17%, up from 11% before the war.
Informal monetary policy
There may be an alternative route that spares the central bank from raising rates in wartime. It could quietly direct state-owned banks to raise returns on investment certificates, allowing those certificates to absorb liquidity from the market and limit the war’s inflationary effects.
This method is known as “informal monetary policy or informal monetary tightening,” Ibrahim Adel, macroeconomic analyst at Mubasher, told Al Manassa.
The central bank wants to kill two birds with one stone by directing state-owned banks to raise certificate yields
He expects that policy has already been put into practice, after the National Bank of Egypt and Banque Misr decided last month to raise yields on three-year savings certificates that pay monthly returns from 16% to 17.25%.
“The central bank is killing two birds with one stone,” Adel said, noting that this policy would spare the bank from raising its own rates, which would in turn push up returns on government debt and increase the public-debt burden.
Limited chances of a cut
In contrast to those expectations, Abd Elhamid Emam, head of research at Pioneers Securities, sees a chance that monetary easing could resume this year, though he puts the probability at no more than 30%. It remains contingent on an improvement in external conditions and a decline in global energy prices.
Adel warned that cutting rates amid the pressures expected in 2026 would not be an easy decision, because it directly affects foreign investors’ appetite for local debt instruments.
Egypt depends heavily on foreign-currency inflows in the form of investments in local debt instruments, known as hot money, whose value had reached 2.5 trillion Egyptian pounds (about $47 billion) by January. A sudden exit from the Egyptian market contributes to violent exchange-rate turmoil, most recently during the Iran war, when the dollar exchange rate rose to 54 pounds.
Adel warned that, with expectations that inflation will remain high, resuming the monetary-easing cycle could weaken real returns and reduce foreign investors’ appetite for Egyptian government debt instruments, especially as global interest rates remain elevated.
Keeping rates unchanged may end up being the order of the day, not only this month but for the rest of the year, as the economy struggles with an uncertain international environment shaped by what Trump and the Iranian regime decide about this war.