Reuters: Continued Decline in Egypt's Inflation Rate… and Expectations of a Gradual Interest Rate Cut

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A recent Reuters poll suggests that Egypt’s annual inflation rate is likely to see a slight decline in March, continuing a downward trend that began after inflation peaked at a record 38% in September 2023. The slowdown is attributed to base-year effects and a deceleration in food and education price increases, potentially opening the door for the Central Bank of Egypt (CBE) to lower interest rates in its upcoming meeting on April 17.

The median forecast of 14 analysts surveyed by Reuters pointed to annual urban consumer price inflation easing to 12.6% in March, down from 12.8% in February. The data for the survey was collected between March 27 and April 7.

Projections from Abu Dhabi Commercial Bank estimate inflation may come in at 12.5%, citing slower increases in food and education prices. However, global financial market volatility remains a pressing concern, which may prompt the CBE to act cautiously and potentially delay any significant monetary easing.

Egypt’s inflation rate has been on a gradual downward path since reaching its historic peak in September 2023. The economy has also been bolstered by major external financial inflows, most notably $24 billion in Emirati investments in the Mediterranean real estate sector in February, and an $8 billion support package signed with the International Monetary Fund on March 6, 2024. These factors have helped stabilize the macroeconomic outlook and ease pressure on monetary policy.

Despite global uncertainties, many analysts still expect the CBE to begin cutting interest rates in the coming months. Goldman Sachs maintains its forecast for a cumulative reduction of more than 1,100 basis points over the next nine months, although it notes the central bank may proceed more cautiously due to external risks.

The Central Agency for Public Mobilization and Statistics (CAPMAS) is scheduled to release the official inflation data on Thursday morning, which will provide clearer guidance on the direction of monetary policy in the short term.