Arab Finance: Morgan Stanley expects the Central Bank of Egypt (CBE) to keep interest rates unchanged through the end of 2026, although it sees an increased possibility of a 2% cut in the fourth quarter (Q4) if inflation falls below 13%, the investment bank said in a report on Egypt’s macroeconomic strategy.
The global financial services firm noted that a stronger-than-expected slowdown in inflation could give the CBE room to ease monetary policy while maintaining a positive real interest rate of around 4%.
On the currency front, Morgan Stanley expects the US dollar to trade between EGP 46 and EGP 52 during the current fiscal year (FY) 2026/2027 under three scenarios shaped by oil prices, regional geopolitical developments, and foreign currency inflows.
Its baseline scenario puts the USD between EGP 48 and EGP 50, supported by continued remittance inflows and foreign reserves that help underpin Egypt’s external position, alongside moderately elevated oil prices.
The scenario assumes regional tensions remain in place for an extended period while volatility in oil markets gradually eases.
Remittances from Egyptians working abroad are projected at around $43 billion in FY 2026/2027, compared with an estimated $46 billion in FY 2025/2026. Morgan Stanley also expects net foreign direct investment (FDI) inflows of approximately $14 billion.
Under a more favorable scenario for the pound, a rapid easing of regional tensions, the reopening of the Strait of Hormuz, and lower oil prices could strengthen capital inflows and bring the USD into an EGP 46 to EGP 48 range, approaching levels seen before the conflict.
That scenario assumes net FDI inflows of around $15 billion during the current FY. It also factors in Brent crude averaging $65 per barrel during the second half (H2) of 2026 before declining to $60 in 2027, easing Egypt’s energy import costs and supporting its external balance.
At the other end of the range, prolonged geopolitical pressures, persistently elevated oil prices, and continued partial restrictions on oil flows through the Strait of Hormuz could push the USD to between EGP 50 and EGP 52.
Under this scenario, Morgan Stanley expects Egypt’s current account deficit to widen to around $17 billion, while net FDI inflows could fall to approximately $13 billion, increasing external financing requirements and adding pressure on the pound.
Oil prices remain a significant variable in Morgan Stanley’s currency outlook. The bank estimates that historically, every 1% increase in oil prices has been associated with an approximately 0.2% increase in the USD-EGP exchange rate.
