The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will convene tomorrow, Thursday, for its sixth regular meeting of 2025 to set the course for the nation’s key policy rates — the main benchmark that anchors short-term Egyptian pound interest rates and guides broader monetary conditions.
At its most recent meeting on 28 August, the Committee delivered a surprise 200-basis-point cut, bringing overnight deposit and lending rates to 22% and 23% respectively, while both the credit and discount rate and the main operation rate were set at 22.5%. The move extended this year’s cycle of monetary easing, which has so far reduced rates by a total of 525 basis points.
That cumulative reduction followed a prolonged tightening stance and a sharp 600-basis-point hike in March 2024, when the CBE floated the pound to stabilise foreign currency liquidity. Since then, the CBE has shifted to a cautiously accommodative trajectory — trimming rates by 225 bps in April, 100 bps in May, and 200 bps in August — reflecting a more favourable inflation outlook and stabilising macroeconomic indicators.
Inflation Path and Policy Outlook
In its August statement, the MPC noted that inflation was on a clear downward trend, projecting an average of 14–15% in 2025 before converging to the official target range of 7% (± 2%) by the fourth quarter of 2026, and further narrowing to 5% (± 2%) by the end of 2028. However, the Committee underscored persistent risks, including possible upward adjustments in regulated prices and the volatility stemming from regional geopolitical tensions.
The CBE stressed that its easing decisions were calibrated to preserve monetary credibility, support the anticipated disinflation path, and maintain positive real interest rates to protect savings and attract capital inflows. It also reiterated that monetary policy would remain data-driven, with adjustments made gradually to strike a balance between stimulating growth and ensuring price stability.
The August inflation data reinforced this outlook. The CBE reported that annual core inflation fell to 10.7% in August, down from 11.6% in July. On a monthly basis, the core index rose only 0.1%, compared to 0.9% in August 2024. Headline urban inflation, compiled by the Central Agency for Public Mobilisation and Statistics (CAPMAS), registered 12% in August, easing from 13.9% in July.
Expert Views: Hold or Cut?
Banking expert Mohamed Abdel Aal argued that monetary policy remains Egypt’s most potent tool to secure financial stability while guiding the economy towards sustainable growth. He explained that by altering policy rates, the CBE not only controls inflation but also shapes investment incentives and liquidity conditions.
“Whenever inflationary pressures dominate, the CBE pursues a restrictive stance. But once inflation is firmly on a downward path, it shifts gradually towards accommodation to stimulate growth,” Abdel Aal told Daily News Egypt.
Abdel Aal expects the MPC to hold rates steady at tomorrow’s meeting, noting that the August cut needs more time to filter through the economy. “Liquidity levels are stable, inflation indicators are easing, and the exchange rate has remained resilient against the US dollar. All these point to a comfortable monetary environment that supports maintaining current rates,” he said.
He also flagged potential risks on the horizon, particularly from energy prices. While the government postponed electricity tariff hikes, it announced that petrol prices would rise from 1 October, excluding diesel. “This will create short-term upward pressure on inflation. The MPC is likely to adopt a wait-and-see approach rather than risk frontloading cuts,” he added.
For Heba Mounir, macroeconomic analyst at HC Securities & Investment, the case for a pause is equally compelling. “The 200-basis-point cut in August was substantial. The economy requires breathing room to absorb its effects,” she said.
Mounir highlighted the inflationary risks tied to last week’s $1 per million BTU increase in natural gas prices for industrial use, alongside the imminent fuel price adjustments. “These factors could temporarily push inflation upwards, justifying a cautious stance from the MPC tomorrow,” she said.
External Position Strengthens
Despite these concerns, Mounir noted that Egypt’s external balances have shown remarkable improvement in recent months. Net foreign assets in the banking system surged by 24% month-on-month in July, reaching $18.5 billion — more than triple the level at the beginning of 2025. Worker remittances also rose by 19% year-to-date to $3.8bn, reflecting growing confidence in Egypt’s foreign currency liquidity.
The Egyptian pound has strengthened by around 5% since January, trading at EGP 48.2 per US dollar, while the one-year credit default swap (CDS) spread dropped to 284 basis points, down from 379 at the start of the year. Net international reserves stood at $49.3bn in August, up 5% since the beginning of the year.
Foreign appetite for Egyptian debt remains robust. At the latest 12-month Treasury bill auction, yields settled at 25.74%, offering an estimated real return of 8.15% after factoring in inflation forecasts and withholding taxes for foreign investors. “This shows that Egyptian debt instruments remain highly attractive to portfolio investors, particularly given the recent decline in sovereign risk premiums,” Mounir said.
She added that a widely expected US Federal Reserve rate cut, combined with Egypt’s stronger external profile, could further lower yield expectations among foreign investors in future issuances.
Market Surveys Split
While local analysts lean towards a hold, international polls suggest the possibility of further easing. A Reuters survey of 16 economists projected a 100-basis-point cut at tomorrow’s meeting, citing continued disinflation and a desire to stimulate growth. Similarly, a Bloomberg poll of 10 investment banks, including CI Capital, Naeem, Prime, and Mubasher, indicated expectations of up to a 1% reduction.
“Egypt’s real interest rates are among the highest in emerging markets, even after the August cut. We expect further easing while keeping real returns in positive territory,” said Jon Swanston, Middle East economist at Capital Economics.
Balancing Growth and Stability
The MPC faces a delicate balancing act. On the one hand, inflation has eased significantly, external balances have improved, and the currency has stabilised, all of which strengthen the case for further cuts. On the other, the risk of renewed inflationary pressures from fuel price adjustments and global uncertainties may justify a more conservative approach.
Abdel Aal emphasised the importance of prudence: “The CBE cannot afford to jeopardise hard-won disinflation gains. Tomorrow’s decision will likely be a signal of its commitment to anchoring expectations and maintaining stability.”
Mounir echoed that sentiment: “The CBE is sending a message of credibility to both domestic and international markets. Even if it holds this time, the easing cycle is not over. Cuts will resume once price shocks fade and disinflation is entrenched.”
Broader Economic Context
Egypt’s monetary policy decisions are unfolding against the backdrop of a broader economic recovery. Growth is projected to accelerate to around 4.2% in FY 2025/26, supported by higher remittances, a rebound in tourism, and rising foreign direct investment. Fiscal consolidation efforts, coupled with IMF-backed reforms, have also helped restore confidence among investors and credit rating agencies.
Yet challenges remain. Global oil prices remain volatile, geopolitical risks in the Middle East continue to cast uncertainty, and any reversal in capital flows could pressure Egypt’s external buffers. Domestically, structural reforms in energy pricing and subsidy rationalisation still carry inflationary risks.
Looking Ahead
Tomorrow’s MPC meeting is being closely watched by markets, investors, and households alike. The decision will shape borrowing costs, deposit rates, and investment conditions across the economy.
If the CBE opts to hold, attention will shift to its forward guidance and signals about the pace of future easing. If it cuts, markets will assess whether the move is part of a steady easing cycle or a tactical adjustment in response to disinflation momentum.
Either way, the central bank faces the difficult task of steering the economy through a complex mix of falling inflation, fiscal reforms, and shifting global conditions.
As Abdel Aal put it: “This is not just about a single meeting. It is about a strategy of sustaining stability while carefully rebalancing the economy towards growth.”
