The report affirmed that the immediate concern for the IMF is likely to be the exchange rate.
It clarified the decline will take place as the Egyptian authorities would loosen their grip on the pound over the coming weeks.
"We expect the interest rate to be reduced to 10 percent by the end of this year and to 9.50 percent by end-2021," it added.
"We have penciled in a 50bp cut in the overnight deposit rate, to 11.75 percent, at next week’s meeting and expect it to be cut further to 10 percent by year-end.”
It also anticipated that the Central Bank of Egypt (CBE) to resume its easing cycle and lower interest rates by 225bp, to 10 percent by end-2020.
The report also thought that the easing cycle has further to run, expecting the overnight deposit rate to be lowered to 10 percent by the end of next year and to 9.50 percent by end-2021.
“A rate cut is more likely at August’s meeting,” the research noted.
Capital Economics expected the Central Bank of Egypt (CBE) to keep interest rates unchanged in December’s meeting and inflation to decline.
The Central Agency for Public Mobilization and Statistics (CAPMAS) announced that annual consumer price inflation slipped to 13.8 percent in June 2018.
Capital Economics expected that further decline of the inflation would push the Monetary Policy Committee to cut the interest rates for the third time this year.
Assuming the election passes smoothly, Egypt should enjoy an upturn in growth over the next 2-3 years, a report by Capital Economic said.
Capital Economics said that Egypt’s PMI for non-oil private sector edged down from 49.9 in January to 49.7 in February, according to a Monday report.
Capital Economics maintained its long-held view that Egypt’s inflation and interest rates will fall further than most expected, according to Thursday’s report.
Capital Economics estimated that the increase in gas production in Egypt will translate into a 2.8 percent increase in the real gross domestic product (GDP).
Egypt’s annual urban consumer price inflation fell to 26.7 percent in November from 30.8 percent in October.
The European Central Bank should shut the door on its monthly asset purchases next September.
Mubasher Research has foreseen annual inflation declining to 24-25 percent by the end of November.
China’s import and export growth accelerated in September, suggesting the world’s second-biggest economy is still expanding at a healthy pace.
Capital Economics said that inflation has now shrunk for two consecutive months for the first time since early 2016.
The recovery was also attributed to the sharp decline in the exchange rate of the Egyptian pound, making travel packages cheaper.