Morgan Stanley, a global investment bank, has forecast that the Central Bank of Egypt (CBE) will keep its benchmark interest rates unchanged at its upcoming meeting. The bank expects the CBE to maintain the deposit rate at 27.25% and the lending rate at 28.25%. However, the investment bank anticipates a potential interest rate cut in the first quarter of 2025.

In a recent research note, Morgan Stanley attributed its forecast to the persistent elevated inflation rate in the near term. The bank cited factors such as the recent fuel price hike and the depreciation of the Egyptian pound as contributing to inflationary pressures.

While Egypt's annual inflation rate decreased to 26.5% in October, Morgan Stanley expects it to gradually decline to 25.3% in November and 23.7% in December. However, the bank cautioned about potential upside risks to this forecast.

The investment bank projects that the CBE will initiate interest rate cuts in the first quarter of 2025 as the base effect from previous price increases fades. Morgan Stanley foresees a gradual easing of monetary policy throughout the year, with the policy rate potentially reaching 17.25% by December 2025. This would bring the rate down from the current 27.25%, while inflation is expected to stabilize around 14% in 2025.

Morgan Stanley noted that the near-term inflation outlook, combined with uncertainties surrounding global economic policies and geopolitical developments, is likely to prompt a cautious stance from the CBE. Therefore, the investment bank ruled out the possibility of a small rate cut in November or December, instead projecting the first cut to occur in February 2025.

The bank anticipates a significant decline in annual inflation to around 15% in the first quarter of 2025, with month-on-month inflation returning to pre-2022 averages.

While maintaining interest rates at the current level until the first quarter of 2025 would create a substantial positive real interest rate gap, Morgan Stanley analysts believe the CBE may prefer a gradual easing of real interest rates. This approach, they argue, would help to keep inflation and foreign exchange risks under control, while supporting the transition to inflation targeting and more flexible foreign exchange arrangements amid global and geopolitical risks.