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Deutsche Bank expects the Central Bank of Egypt to cut interest rates by 4% during the remainder of the current year, which may include a 2% reduction in August. However, the bank conditioned the cut in August on the stability of inflation, especially given the upward risks due to fiscal adjustment measures.

The bank indicated in a report that the average inflation rate could register between 15-16% by the end of the current year, according to a report reviewed by "Al Arabiya Business".

The German bank anticipated that the Central Bank would resume cutting interest rates in August by about 2%, but it noted that the upcoming inflation reading would play a significant role, as there are downward risks that could force the Central Bank to maintain rates, which will determine the extent to which the effects of fiscal adjustment measures are transmitted to local prices.

The bank stated: "The structural reforms being undertaken by the authorities in Egypt ensure high growth rates for the economy and leave the Central Bank with a comfortable space to manage interest rates."

It noted that this point is particularly important for Egypt, considering the upward pressures of temporary inflation associated with the ongoing fiscal adjustment process under the IMF program, which includes increases in fuel prices, tax reforms, and raising the minimum wage.

Deutsche Bank added: "There are upward risks for rising inflation through the possibility of exchange rate fluctuations transferring to inflation, especially if global and geopolitical uncertainty leads to additional pressures on the currency, such as the recent sell-off in emerging markets and the decline in Suez Canal revenues."

It clarified that there are limited risks of inflation falling below expectations, including the continued contraction of food prices as happened in June, although this is unlikely in the absence of significant government support or price caps.

In its meeting in July, the Central Bank of Egypt decided to keep interest rates unchanged, despite the larger-than-expected decline in the inflation rate in June to 14.9% from 16.9%.

The Central Bank believes that adopting a "wait-and-see" approach is essential, especially in terms of assessing the impact of fiscal adjustment measures such as the recent legislative amendments related to VAT reforms.