Egypt’s Inflation Ticks Up But Rate Cut Still in View Amid IMF Support

Egypt’s annual inflation rate rose to 13.6 percent in March 2024 from 12.8 percent in February, according to data released by the country’s statistics authority on Thursday.

The increase follows a sharp drop the previous month but remains below the highs recorded in 2023.

Food and beverage prices, which make up the largest share of the consumer basket, climbed by 6.6 percent year-on-year compared to 3.7 percent in the previous month.

On a monthly basis, urban consumer prices increased by 1.6 percent, up from 1.4 percent in February.

Despite the uptick, economists expect the Central Bank of Egypt to consider an interest rate cut during its upcoming policy meeting scheduled for April 17.

The country has maintained a benchmark interest rate of 27.25 percent, one of the highest globally in real terms when adjusted for inflation.

Egypt’s monetary authorities have kept rates elevated to stabilize the pound and curb inflation pressures following a series of devaluations that began in 2023.

The local currency recently fell to a record low of 51.67 per dollar as global economic conditions and trade tensions weighed on emerging market assets.

In response to foreign exchange shortages and rising inflation, the government implemented a series of policy reforms that included raising fuel and electricity prices to unlock international funding.

These efforts culminated in a $57 billion support package led by the International Monetary Fund and the United Arab Emirates.

While the March inflation reading marks the first increase since October 2023, it remains far below the 38 percent peak seen in September of that year.

Analysts believe this provides the central bank with enough room to begin a cautious monetary easing cycle, especially as inflation expectations moderate and external financing improves.

The Egyptian government has stated that it aims to bring inflation down to a target range of 7 percent plus or minus 2 percentage points by the end of 2025.

A rate cut could support efforts to revive domestic consumption, reduce borrowing costs and boost private sector growth.

Despite the weakening currency and recent portfolio outflows estimated at over $1 billion by Goldman Sachs and EFG, Hermes officials say outflows have begun to slow.

Prime Minister Mostafa Madbouly noted that foreign investment interest remains intact though short-term pressures persist due to global market conditions.

The last time Egypt reduced interest rates was in 2020, during the COVID-19 pandemic. Any move to cut rates now would signal a shift toward supporting economic recovery while maintaining a focus on inflation control and foreign exchange stability.