Arab Finance: The Central Bank of Egypt (CBE) expected Egypt’s headline inflation to accelerate temporarily through the third quarter (Q3) of 2026 before gradually easing toward its target range in the second half (H2) of 2027, according to the Q2 2026 Monetary Policy report.

Under the baseline scenario, annual headline inflation is projected to rise during Q3 2026, although at a more moderate pace than previously projected in the report.

Then, the inflation rate is expected to gradually decline and reach a single digit in H2 207, eventually aligning with the CBE’s target of 7%, plus or minus two percentage points.

However, the outlook remains subject to any developments in the Iran–US conflict. Hence, the CBE developed two alternative scenarios based on potential escalation or de-escalation.

In a different scenario, annual headline inflation is projected to average between 15.2% and 17.8% in fiscal year (FY) 2026/2027, before easing to between 7.7% and 8.3% in FY2027/2028. This compares with an average inflation rate of 13.3% in FY 2025/2026.

The CBE also revised its real gross domestic product (GDP) growth forecast to 5% in FY 2025/2026 and 4.9% in FY 2026/2027, up from previous estimates of 4.9% and 4.8%, respectively.

Regarding the labor market, the unemployment rate decreased to 6.0% in Q1 2026, down from 6.3% during the same quarter in 2025. However, real wage growth slowed significantly to 1.3% in Q1 2026, down from 11.0% a year earlier. This deceleration is attributed to slower nominal wage growth alongside a rise in inflation.

In the July meeting, the Monetary Policy Committee (MPC) decided to hold interest rates steady for the third consecutive time. The overnight deposit rate, overnight lending rate, and the rate of the main operation remained at 19%, 20%, and 19.50%, respectively.