On Thursday, Egypt's Central Bank made headlines as it once more opted to keep its overnight interest rates steady, marking the third consecutive time this action has been taken in 2024. The bank's decision reflects ongoing efforts to stabilize the nation's economy in the face of persistent inflation and other economic challenges. According to the Central Bank of Egypt (CBE), the lending rate will remain at 28.25%, while the deposit rate stays at 27.25%.

This decision aligns with expectations, as a recent poll of 15 analysts by Reuters had shown a near consensus that rates would remain unchanged. Only one analyst had predicted a 100-basis-point cut.

The decision to maintain the rates follows significant economic developments over the past year. On March 6, the CBE had raised rates by 600 basis points following an $8 billion financial support agreement with the International Monetary Fund (IMF). This dramatic increase was aimed at addressing soaring inflation, which had surged to an all-time high of 38% in September before gradually dropping to 25.7% in July. Expectations are optimistic, with the CBE projecting a significant reduction in inflation by the first quarter of 2025.

Analysts have been keenly observing this situation. Capital Economics' James Swanston noted, We anticipate interest rates being left on hold by the CBE given inflation remains well above target. This viewpoint echoes the sentiments of several investment banks, including EFG Holding, Beltone, Naeem, and others, all predicting that the CBE would likely keep the rates steady in the short term.

Mohamed Abdel Aal, a prominent banking expert, also provided insights, highlighting that both general and core inflation rates have consecutively declined for five months. He noted that global and domestic factors, including geopolitical tensions and pressures from the IMF, could influence future decisions on interest rates. Despite the recent decrease in Egypt's stubborn inflation rate and the beginning of rate cuts in the US, we must remain cautious due to four critical factors that could influence future interest rate decisions, Abdel Aal stated. These factors include ongoing geopolitical risks, the government's subsidy rationalization plan, and pressures from the IMF to maintain restrictive monetary policies.

The trajectory of inflation has been a focal point for the CBE's Monetary Policy Committee (MPC). The committee emphasized that future decisions will depend on expected inflation rates rather than current figures. They have committed to using all available monetary policy tools to tackle inflation, stabilize prices, and promote economic growth.

Domestically, Egypt's economy has faced significant challenges. Apart from the pandemic-related disruptions, the twin shocks of Russia's invasion of Ukraine and the war in Gaza have compounded the country's economic woes. A noticeable slowdown in real GDP growth to 2.2% for Q1 2024 from 2.3% in Q4 2023 has been partly attributed to disruptions in Red Sea maritime trade and its impact on the service sector.

Globally, the economic landscape has been tumultuous, with monetary tightening policies in both advanced and emerging markets contributing to a decline in inflation rates. Some central banks have even begun to lower their key interest rates as inflation nears target levels. At the same time, geopolitical tensions and unstable commodity prices continue to add layers of complexity to global economic forecasts.

The CBE's decision to hold the rates also aligns with trends observed in other major economies. The US Federal Reserve and several European central banks have begun transitioning from rigid monetary policies to more accommodative measures. This shift is primarily guided by a focus on supporting employment and addressing the broader economic impacts of prolonged monetary tightening.

Although the CBE has kept the rates unchanged, there is a broader context to consider. Future reductions in interest rates could hinge on several factors, including stabilization in global geopolitical conditions, a sustained decrease in inflation, and the government's economic policy direction, particularly regarding subsidies and fiscal measures.

The economic community will be closely watching the next steps taken by the CBE's MPC. The committee has reiterated its commitment to closely monitor economic developments and adjust policies to navigate the prevailing economic challenges effectively.

As the new fiscal year progresses, expectations remain cautiously optimistic. With the gradual subsiding of previous economic shocks and the continued decline in inflation, there is hope for a more stable economic environment in Egypt. However, the path forward will require carefully calibrated policy measures to balance the objectives of curbing inflation and fostering economic growth.