Goldman Sachs Expects Egypt To Cut Interest Rates By 2%

April 28, 2024


The Central Bank of Egypt (CBE) is expected to raise key interest rates by 2% (200 basis points) in May, as projected in a research note from the American investment bank Goldman Sachs. This move is based on the anticipation of inflation decreasing to 20% by the end of 2024.

The CBE’s Monetary Policy Committee is scheduled to convene on May 23 to review key interest rates in light of the latest inflation data. To control inflation, the committee aims for a rate of 7% (±2%) by the fourth quarter of 2024.

According to recent projections from the International Monetary Fund (IMF), Egypt’s inflation is expected to decline starting in the upcoming FY2024/2025, falling below 26% from its current level exceeding 33%.

In its March meeting, the CBE raised key interest rates by 6% (600 basis points), bringing the total increase since the beginning of 2024 to 8% (800 basis points). Presently, rates stand at 27.25% for the deposit rate, 28.25% for the overnight lending rate, and 27.75% for the rate of the main operation.

Total borrowings

During the first quarter of 2024, the Egyptian government borrowed a total of EGP 1.8 trillion, with an additional EGP 240 billion received by the treasury. The CBE estimated the government’s financing needs at EGP 1.1 trillion, repaying EGP 382 billion from the overdraft balance, resulting in a surplus of EGP 530 billion. Looking ahead to the second quarter, the government’s financing needs are expected to decrease by half, totaling EGP 1.6 trillion, which includes EGP 1.1 trillion for financing needs and EGP 450 billion for settling the overdraft with the CBE.

Notably, during the first quarter, the government borrowed EGP 530 billion more than required and received approximately EGP 340 billion as the second installment of the Ras El-Hekma development deal—a $35 billion foreign direct investment (FDI) agreement signed with the UAE in February.

According to the research note, there’s a remaining gap of EGP 724 billion.

Goldman Sachs reported that government debt issuances averaged EGP 604 billion in the first quarter of 2024, with March alone exceeding EGP 951 billion. This reduction in accepted bids eases pressure on government debt interest.

Egypt is part of an Extended Fund Facility (EFF) loan program with the IMF worth $8 billion over 46 months, aiming to lower inflation to single digits by 2026. Aligned with the EFF program, Egypt’s real GDP growth is projected to average 3% in 2024, rising to 4.4% in 2025. Inflation is expected to stay high in the short term due to currency depreciation but is forecasted to average 25.5% in fiscal year 2024/2025, dropping to 15.2% by the fiscal year’s end, driven by tighter monetary policy and local currency appreciation, per IMF estimates.