This year marks a significant shift in the Central Bank of Egypt’s (CBE) monetary policy, as it moves from a prolonged phase of tightening to a gradual easing cycle. Since April, the CBE has reduced interest rates by a cumulative 5.25% across three meetings—the first such sequence since November 2020. The cycle began with a 2.25% cut in April, followed by a 1% reduction in May, and a further 2% cut last Thursday.
The shift comes against the backdrop of a sustained slowdown in inflation. Annual headline inflation eased to 13.9% in July 2025, down from 14.9% in June, while core inflation remained broadly stable at 11.6%, compared with 11.4% a month earlier. The CBE said that back-to-back declines over two months signal that inflation is firmly on a downward trajectory and is on track to move closer to target by the fourth quarter of 2026. It nevertheless cautioned that risks remain, including the potential impact of administered price adjustments and heightened geopolitical tensions in the region.
Early signs suggest that the easing cycle is already filtering into markets. Deposit and lending rates have started to adjust, with the weighted average rate on new deposits falling to 18.8% from 21% following the April and May cuts, while average loan rates declined to 25.4% from 26.6%. The CBE noted that these movements indicate the initial pass-through of policy rate changes to the banking sector.
The overnight interbank rate has also eased, with about 65% of the cumulative policy rate cuts transmitted to the market. The average interbank rate declined to 25.4% in the second quarter of 2025, from 27.5% in the first. Government securities yields followed suit, with the weighted average cost of funding in Egyptian pounds dropping to 26.2% from 27% in the first quarter (before taxes). Coverage ratios, however, declined from three times to two, while the bid-to-cover ratio slipped from 0.9 to 0.7, suggesting that the full effect of the recent cuts has yet to materialise.
Foreign investors continued to expand their holdings of Egyptian debt, particularly long-term instruments, supported by improving sentiment and expectations of further policy easing. Egyptian Eurobond yields also declined sharply in the final quarter of FY2024/25, reflecting both stronger global risk appetite and improved domestic macroeconomic conditions.
The CBE observed that Egypt’s yield curve began to normalise in the same period, coinciding with the start of monetary easing. The spread between three- and 12-month tenors narrowed to 192 basis points, compared with 282 previously, while the gap between 12-month and three-year yields contracted to 155 basis points, from 359. The sharper adjustment at the short end of the curve reflects a typical market response during early easing cycles, where short-term yields move more quickly to signal the expected path of interest rates.
The Ministry of Finance has moved to take advantage of lower yields by adjusting its debt issuance strategy. In the final quarter of FY2024/25, it reintroduced five-year fixed-rate bonds while continuing to issue three- and five-year floating-rate notes. The shift aims to extend the average maturity of public debt and reduce refinancing risks, aligning with the government’s broader debt management objectives.
With inflation showing signs of moderation, market rates adjusting, and investors regaining confidence, the CBE’s easing cycle represents a clear turning point in monetary policy—one that policymakers hope will support growth momentum without jeopardising the path toward medium-term price stability.
