The outcome matched the expectations of all six economists polled by Bloomberg.
Egypt had been in a nearly year-long cycle of cutting rates, but that came to a halt when the US and Israel launched military operations against Iran in late February. This week's fresh exchanges of strikes between Washington and Tehran have further dimmed hopes for a near-term resolution to the conflict, which has disrupted global energy markets.
The decline owes something to the base effect - where comparisons with a high year-earlier period flatter the current figure.
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Nevertheless, "Mohamed Abu Basha, head of macroeconomic analysis at investment bank EFG Hermes, said in a note before the decision" that "a 'still unstable geopolitical environment' will likely keep the central bank 'from rushing to cut rates.'"
"The drop in oil prices and appreciation of the Egyptian pound clearly dent inflationary risks," he said. "However, the recent renewal of geopolitical tensions and partial reversal of these positive trends are likely to keep the Central Bank of Egypt maintaining its more cautious approach towards interest rates."
The central bank's decision comes amid mixed signals for the Egyptian economy. While inflation has eased, the geopolitical turmoil continues to weigh on investor sentiment. Foreign portfolio flows, which had surged after the devaluation and bailout, have reversed sharply since the onset of the conflict.
The pound's partial recovery has not fully restored confidence, and the IMF's continued engagement is seen as critical for stability. Analysts expect the central bank to hold rates at least until the geopolitical picture becomes clearer.
Following a $57 billion international rescue package obtained by Egypt at the start of 2024, along with a currency devaluation, its local debt became extremely appealing to foreign investors because of high inflation-adjusted yields that were among the highest globally. The conflict between the US and Israel against Iran triggered massive outflows of billions of dollars, pushing the Egyptian pound down to around 54 to the US dollar. The pound has since staged a slow recovery, but those gains have been partly erased as the US and Iran exchanged fresh strikes.
The $57 billion package included an $8 billion IMF extended fund facility, and the currency devaluation was a key condition. That policy shift initially attracted significant foreign capital into Egyptian local debt, drawn by yields that exceeded 20% after adjusting for inflation. However, the outbreak of hostilities reversed those inflows almost overnight, forcing the central bank to tighten policy and defend the currency. The recent strikes between the US and Iran have further destabilized the region, making a quick return of foreign investors unlikely.
The prolonged geopolitical uncertainty has also delayed the anticipated return of foreign investors, who had been drawn by Egypt's high yields. While inflation has moderated, the central bank remains vigilant, with analysts forecasting no rate cuts until the regional situation stabilizes.
Implementing a flexible exchange-rate regime remains a central requirement of Egypt's enlarged IMF program. Last month, the IMF reached a staff-level agreement on the most recent review of the program, which would allow Egypt to access over $1.6 billion.
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