HSBC expects CBE’s reversal of interest rate hikes amid stable inflation

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HSBC Global Research forecasts potential policy shifts by the Central Bank of Egypt (CBE) during its May Monetary Policy Committee (MPC) amidst Egypt's stable inflation landscape, as per a research note.

Hence, the CBE is expected to interest rates on hold during the MPC’s upcoming meeting this month, reversing the 800 basis points (bps) of hikes that occurred in the first quarter (Q1) of the year, the note added.

The note also showed that uncertainty surrounding subsidy cuts and administered price hikes continues to loom large over forecasts.

As speculation mounts regarding potential policy adjustments, the burden of high interest rates on the budget and sluggish domestic demand prompts considerations for rate adjustments by the CBE.

Yet, the imperative of upholding monetary policy credibility, especially in light of recent International Monetary Fund’s (IMF) program commitments and the need to stabilize the new FX regime, suggests caution in premature rate cuts, particularly when real rates remain negative.

However, April's figures bolster expectations of a gradual decline in annual inflation, projected to dip below 30% in June and further to under 20% in Q1 2025, HSBC expects.

The Central Agency for Public Mobilization and Statistics (CAPMAS) announced recently that Egypt's annual headline inflation slightly declined to 31.8% in April, versus 33.1% in March.