The Central Bank of Egypt (CBE) left interest rates on hold for the tenth consecutive meeting on Thursday. The CBE left the overnight deposit rate at 8.25% and the lending rate at 9.25%, while the main operation and discount rates are still at 8.75%, it said in a statement (pdf) following the meeting.

The decision was in line with analyst expectations. All eight analysts and economists we polled last week expected the Monetary Policy Committee (MPC) to keep rates unchanged, telling us that the EGP carry trade is unlikely to face immediate pressure from the US Federal Reserve’s plan to raise rates this week.

Keeping rates unchanged was expected for many reasons, Al Ahly Pharos’ Radwa El Swaify told us. “We have to look cautiously at what is happening on the monetary policy front globally, especially in the US, as well as the expected rise in inflation due to the surge in global commodity prices,” she said. “Additionally, investors exiting from fixed income portfolios has been common among all emerging markets, and it’s related to EM strategy, not specific to Egypt. Meanwhile, locally, inflation is within the CBE’s range so there was no reason whatsoever to change the rates.”

Egypt continues to offer the highest real interest rates in the world, maintaining the attractiveness of our debt market to foreign investors. “We believe Egyptian treasuries will remain attractive, underpinned by EGP stability and maintained real interest rates,” Beltone Financial’s Alia Mamdouh wrote in a note following the CBE’s decision. “Among emerging markets with comparable yields, Egypt still stands out with a relatively less impacted economy from the repercussions of the covid-19 pandemic as it provides growth potential.” Egypt’s real return is currently around 4%, according to HC Securities’ Monette Doss, which compares favorably to rates in the US and other high-interest rate emerging markets.

Inflation is not a concern: The CBE expects price stability over the medium term, it said in its statement. Urban inflation rose to 5.9% in December from 5.6% in November, kicking off an expected upward trend in the coming months, largely due to an unfavorable base effect along with a global increase in consumer prices. However, the annual rate is expected to remain within the central bank’s target range of 7% (±2%) by 4Q2022.

Yet… Beltone expects inflation to average 9.6% through 2022, slightly above the CBE’s target range, due to the base effect and higher international commodity prices.

Expectations for a rate hike in 2022 are increasing: Some analysts are now expecting that the CBE will follow other central banks around the world and raise rates some time this year. Al Ahly Pharos’ is forecasting rates to rise 100 bps this year, “depending on the pressures from global monetary conditions, commodity prices, and inflation in general,” El Swaify told us. Beltone Financial also expects a 100bps hike through the year: “The need to maintain [the] lucrative carry trade in the fixed-income market, particularly with the rise in global rates posing a risk to inflows into emerging markets, backs our view,” Mamdouh wrote.