The Central Bank of Egypt (CBE)’s Monetary Policy Committee (MPC) decided last Thursday to cut its key interest rates by 1 percentage point, lowering the overnight deposit rate to 24%, the lending rate to 25%, and the rate for main operations and discounting to 24.5%.
In a statement, the MPC said the decision reflects the latest economic data and forecasts since its previous meeting on 17 April. The move is part of the CBE’s broader strategy to manage inflation while supporting a recovery in economic activity.
Global Growth Slows Amid Persistent Uncertainty
The committee noted that global growth expectations have weakened since April, largely due to evolving trade policies and the potential for renewed supply chain disruptions. These factors have led many central banks—both in advanced and emerging economies—to adopt a more cautious stance on monetary policy.
Global oil prices continue to be driven by supply-side factors amid weakening demand forecasts. Meanwhile, agricultural prices have declined more gradually, with climate-related risks limiting further drops. Despite some moderation, inflationary risks globally remain elevated due to geopolitical tensions and uncertain trade dynamics.
Domestic Economy Strengthens, But Output Gap Remains
On the domestic front, preliminary indicators from the first quarter of 2025 suggest Egypt’s economy continues to recover, with real GDP growth expected to reach 5.0%, up from 4.3% in Q4 2024. However, the output gap indicates that GDP remains below potential, meaning that demand-side inflationary pressures are still limited.
The CBE expects the economy to reach full capacity by the end of fiscal year 2025/2026, aligning with its broader macroeconomic outlook.
Labour market conditions also improved modestly, with the unemployment rate declining to 6.3% in Q1 2025 from 6.4% in the previous quarter.
Inflation Cools Significantly in Early 2025
One of the most significant factors behind the rate cut was the steep decline in inflation during Q1 2025. The MPC attributed this drop to easing inflationary pressures, tight monetary policy, favourable base effects, and the gradual fading of earlier shocks.
By April 2025, annual headline inflation had declined to 13.9%, while core inflation settled at 10.4%. This was largely driven by lower monthly inflation rates, particularly for food, which helped offset the effects of higher non-food inflation stemming from regulated price adjustments. The committee emphasized that these regulated price changes are temporary, and that core inflation has been on a consistent downward trajectory since the beginning of the year.
The easing in both headline and core inflation, alongside weakening underlying pressures, reflects improved inflation expectations. The CBE expects inflation to continue falling throughout the rest of 2025 and into 2026.
Risks to Inflation Outlook Moderating, But Not Gone
The committee said that the upside risks to inflation have diminished since April due to improving trade conditions, exchange rate developments, and the return of key risk indicators to normal levels. These factors support the decision to move forward with monetary easing.
However, the CBE also flagged remaining risks, including continued global protectionism, geopolitical instability in the region, and the potential inflationary effects of ongoing fiscal reforms. The gradual implementation of consolidation measures and the relative persistence of non-food inflation could slow the expected pace of disinflation.
Balanced Approach to Easing While Managing Risks
Given current monetary conditions, the 100-basis-point rate cut is seen by the committee as a balanced step. It allows the CBE to continue supporting the disinflation trend while maintaining adequate caution in the face of remaining risks.
The MPC stressed that it will continue to assess interest rate decisions on a meeting-by-meeting basis, guided by the latest data, forecasts, and risk assessments.
“We remain fully committed to our inflation-targeting framework and will not hesitate to use all available tools to bring inflation down to our target of 7% (±2%) on average by Q4 2026,” the committee concluded.
