Monetary policy plays a central role in steering economic performance and is one of the most effective tools for achieving financial stability and sustainable growth. By activating monetary policy tools—particularly changes in interest rates—the Central Bank of Egypt (CBE) controls inflation and stimulates investment, thereby boosting economic activity and creating a more favourable investment environment. The CBE follows a restrictive policy to curb inflationary pressures, then shifts to an accommodative stance to stimulate economic growth once inflation recedes and shows sustained progress towards the set targets.
Examining Egypt’s monetary policy over the past three years reveals a model of balanced management that adapts to domestic and international economic conditions as they evolve.
From 2022 until the end of 2024, the CBE’s Monetary Policy Committee (MPC) raised interest rates by around 1,900 basis points. From the beginning of 2025 to date, however, it has cut rates by a total of 525.5 basis points. This shift reflects several important trends: the initiation of an easing cycle in April–May 2025, aimed at boosting economic growth, investment, production, and employment. At the same time, the committee has sought to balance supporting growth with containing inflation, particularly as inflationary pressures eased and overall market performance improved.
The Committee’s decisions rest on objective indicators reflecting both government and CBE priorities to sustain economic growth and stabilise inflation, reinforcing Egypt’s ability to meet its economic aspirations in the coming period.
The return, after a period of holding rates steady, to a policy of monetary easing and interest rate cuts was driven by a notable decline in both headline and core inflation. This created conditions conducive to easing borrowing costs and financing expenses, enhancing companies’ ability to expand, improving consumer purchasing power, and thus driving GDP growth to higher levels.
Falling interest rates have also had a positive effect on the US dollar, reducing exchange rate pressures and stabilising the currency market. This, in turn, lowers the import bill by reducing the cost of imported goods and production inputs, which should help improve the future pricing of Egyptian goods both domestically and abroad.
Nonetheless, interest rate decisions remain subject to global political and economic developments, particularly regional geopolitical tensions, trade wars, and the impact of US tariffs. Changes in US interest rates also play a critical role in the stability of the foreign exchange market and Egypt’s ability to attract foreign portfolio investments in government debt instruments—so-called “hot money.”
In light of the above, and with economic, monetary, and fiscal indicators improving—alongside continued declines in inflation rates—the MPC is expected to keep interest rates unchanged at its October meeting, postponing further easing until the next session.
Several factors underpin this outlook, most notably liquidity levels in the market—one of the main determinants of monetary policy decisions. Recent data indicate stability in the volume of cash in circulation, alongside a sustained decline in headline, core, and implicit inflation, and exchange rate stability of the pound against the dollar. Together, these factors have helped reduce inflationary pressures and create a more stable monetary environment.
Additionally, the widening gap between real yields on domestic and foreign instruments, coupled with lower future inflation expectations, has reinforced the view that there is no need to adjust interest rates at present.
However, there remains concern over the potential emergence of new inflationary pressures, particularly given rising fuel prices. The government has delayed electricity price hikes but has announced fuel price increases from the beginning of October (excluding diesel), which could generate some short-term inflationary pressures.
Overall, the data suggest an appropriate balance between liquidity levels and prudential policies, supporting the likelihood of maintaining current interest rates.
It is expected that the MPC will remain cautious, closely monitoring global and domestic developments before proceeding with gradual easing. This caution reflects a determination to preserve consumer price stability while balancing the twin goals of stimulating economic growth and controlling inflation, all while remaining vigilant for any signals that might necessitate future policy adjustments.
Mohamed Abdel Aal – Banking expert
