Capital Economics expects the Central Bank of Egypt (CBE) to introduce another interest rate cut during the Monetary Policy Committee (MPC) meeting in September.
Supported by continued low inflation last August, the CBE is expected to cut rates by about 50 basis points or 1.5-2 percent.
In August, the CBE cut its deposit and lending rates by 150 basis points to 14.25% and 15.25% respectively.
Meantime, the Central Agency for Public Mobilization and Statistics (CAPMAS) is scheduled to announce August's inflation this week.
The core inflation rate fell to its lowest level since September 2015 at 5.9% from 6.4% last June.
The year-on-year inflation rate also declined in July to 8.7% from 9.3% in June.
"We believe inflation will continue to fall, which is likely to prompt the central bank to introduce another rate cut at the end of this month," Capital Economics said in a report.
The London based research consultancy expects the overall inflation to fall to 8.3% year-on-year basis.
" In the coming period, the continued appreciation in the value of the Egyptian currency will lower imported good's prices, leading to lower inflation and thus a lower interest rate," Capital Economics added.
Moreover, unemployment resumed its decline to 7.5 percent, falling 6 percent from an all-time high in 2013. Expectations of interest rate reduction direct investors toward Egypt's long-term debt instruments such as long-term bonds and T-bills.
The pace and magnitude of future adjustments in the central bank’s benchmark interest rate will continue to rely on the consistency of inflation expectations with target rates, ensuring the continuation of the target downtrend.
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