Market News

By Mirette Magdy

(Bloomberg) -- Egypt looks set to wait until next year to make its first interest-rate cut since 2020 as it grapples with an unexpected quickening in inflation and fears of a wider conflict in the Middle East.

With a sharp hike in energy costs sparking two mild rises in the consumer-price index in as many months, institutions such as Goldman Sachs Group Inc. have revised earlier predictions a reduction was imminent. All nine economists in a Bloomberg survey see the central bank leaving the benchmark deposit rate at an all-time high of 27.25% on Thursday.

Also factoring into Egypt’s decision is the threat of an all-out war between Israel and Iran that might trigger a spike in energy prices and further disrupt regional trade already roiled by Yemeni militant attacks on Red Sea shipping. The North African nation is emerging from a two-year economic crisis after securing a global bailout of about $57 billion and devaluing its currency by about 40% in March.

“Delaying interest-rate cuts would bode well for currency stability,” said Carla Slim, an economist at Standard Chartered Plc. “Egypt’s foreign-exchange liquidity outlook continues to be clouded by the widening and deepening regional conflict.”

The Middle East’s most-populous nation has raised rates by 8 percentage points this year, with inflation slowing even after the currency plunge. As the US Federal Reserve begins a monetary-easing cycle that’s encouraging other economies to follow suit, most analysts see Egypt’s first reduction since the height of the coronavirus pandemic as only a matter of time. 

But recent cuts in state subsidies for items like fuel and electricity have nudged up inflation and made an easing now more likely to happen in the first quarter of 2025.

Announcing its last rate hold in September, Egypt’s central bank said the level remained appropriate “until a significant and sustained decline in inflation is realized.”

That might not be too far away.

Inflation crept up to 26.4% in September from 25.7% in July — “a modest acceleration” given it reflects two fuel-price hikes and increases for pharmaceuticals, tobacco and power, according to Mohamed Abu Basha, head of research at Cairo-based investment bank EFG Hermes. 

The recent quickening “would not constitute major risks to the inflation outlook,” he said

Goldman and EFG Hermes are among those predicting Egyptian inflation will remain at roughly the same level until January, before a favorable comparison rate with the year earlier brings a sharp decline in February.