Standard Chartered now expects the Central Bank of Egypt to keep policy rates at 19% for the rest of FY26 (ending June), delaying earlier expectations of near-term easing. The bank still projects a policy rate of 13% by end-2026, with easing resuming later in 2026 if conditions stabilise. Inflation has picked up, with fuel price rises expected to pass into transport and production costs in coming months. This increases the risk of further upside inflation surprises and tighter financial conditions. The Egyptian pound has faced renewed pressure, with USD/EGP recently trading near record official-market lows around 53. Portfolio outflows have also added strain. At the same time, stronger foreign exchange liquidity and improved net foreign assets are cited as factors that can help steady the FX market. These buffers may help absorb outflows and support more rate cuts later in 2026. The Central Bank of Egypt is now expected to keep policy rates at 19% through the fiscal year ending in June. This changes the game for anyone who was positioned for rate cuts in the near term. Those bets on imminent easing now look misplaced and need to be reconsidered in the coming weeks. The primary reason for this policy pause is the rebound in inflation, a key concern for the market. Recent data from CAPMAS showed February’s annual urban inflation ticked up to 36.5%, reversing a downward trend we saw for much of 2025. This surprise jump makes it nearly impossible for the central bank to justify cutting rates right now. We are seeing the pressure build on the Egyptian pound, which has depreciated past the 53 mark against the dollar this week. This is a significant level, reminiscent of the lows following the major devaluation back in early 2025. For traders, this weakness reinforces the case for caution and suggests betting against the EGP could remain profitable in the short term. Given the uncertainty, buying volatility on the USD/EGP pair through options strategies like straddles makes sense. This allows traders to profit from a significant move in either direction, without needing to predict if the currency will stabilize or weaken further. We have also seen an estimated $1.2 billion in portfolio outflows over the last four weeks, which will likely keep the market choppy. For interest rate derivative traders, positions should be adjusted to reflect a “higher-for-longer” scenario for the next few months. This could involve selling near-term interest rate futures or entering into payer swaps to bet on rates staying elevated. The previous consensus of a quick return to easing is off the table until at least the second half of the year. Although the long-term view still calls for rate cuts to 13% by the end of 2026, that seems very distant from here. The immediate focus should be on the continued tight financial conditions caused by inflation and recent fuel price hikes. These factors will likely dominate market sentiment over the coming weeks.

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