The Central Bank of Egypt (CBE) has stated that inflation expectations remain exposed to upside risks stemming from both domestic and global factors, including regulated price adjustments exceeding projections and rising geopolitical tensions in the region.
At its meeting last Thursday, the CBE’s Monetary Policy Committee (MPC) decided to reduce the bank’s key policy rates by 1 percentage point, setting the overnight deposit rate at 21%, the overnight lending rate at 22%, and both the main operation rate and the discount rate at 21.5%.
In a statement following the meeting, the MPC said the decision reflects its assessment of the latest inflation developments and the evolving outlook since its previous meeting, noting that the move aims to sustain the disinflation process while maintaining macroeconomic stability.
Global Context: Gradual Easing and Stable Inflation Expectations
On the global front, the Committee observed that recent indicators point to a moderate recovery in growth, accompanied by stable inflation expectations. As a result, many central banks in advanced and emerging economies have continued to ease monetary policy gradually, responding to fast-changing global conditions.
Oil prices have largely remained stable, though some recent upward pressures have emerged due to supply factors. Meanwhile, agricultural commodity prices have exhibited mixed but limited movements.
Despite these stabilising trends, the MPC warned that global growth and inflation remain vulnerable to several risks — most notably the potential escalation of geopolitical tensions and ongoing uncertainty surrounding global trade policies.
Domestic Economy: Growth Accelerates but Remains Below Potential
Domestically, Egypt’s real GDP growth accelerated to 5% in the second quarter (Q2) of 2025, up from 4.8% in the previous quarter. Consequently, average growth for FY 2024/2025 reached 4.4%, compared with 2.4% in FY 2023/2024.
This improvement was primarily driven by non-oil manufacturing, tourism, and trade, which collectively supported the ongoing recovery in economic activity.
However, the MPC noted that output still remains below potential, meaning that current levels of economic activity continue to support the anticipated short-term disinflation path. Under the present monetary policy stance, demand-side inflationary pressures are expected to stay contained.
Inflation Dynamics: Easing Headline and Core Rates
The Committee reported that annual headline inflation fell to 12% in August 2025, down from 13.9% in July, while annual core inflation declined to 10.7% from 11.6%.
This moderation, according to the MPC, reflects subdued monthly inflation developments in August — 0.4% for headline inflation and 0.1% for core inflation — largely driven by declining food prices and relative stability in non-food components.
The MPC highlighted that the broad-based easing in monthly inflation over the past three months signals improving inflation expectations and the gradual unwinding of previous supply shocks.
In light of these developments, CBE estimates indicate that inflation will continue to decelerate, averaging between 12% and 13% in the third quarter (Q3) of the current year, compared with 15.2% in the previous quarter.
Over the medium term, inflation is projected to continue its downward trend, albeit at a slower pace, shaped by gradual declines in non-food inflation and the impact of ongoing fiscal consolidation measures.
Policy Outlook: Sustaining the Disinflation Path
According to the MPC’s projections, average headline inflation is expected to hover around 14% in 2025, approaching the CBE’s target range by Q4 2026.
“Given the progress achieved in disinflation and the improved inflation outlook, the Committee judged that cutting the CBE’s key policy rates by 100 basis points was appropriate to anchor expectations and support the anticipated disinflation path,” the statement said.
The MPC reaffirmed its data-dependent approach, emphasising that the pace of future monetary easing will be assessed on a meeting-by-meeting basis. Decisions will continue to depend on the evolving inflation outlook, risk balance, and incoming data.
It added that the CBE remains fully committed to achieving price stability, and “will not hesitate to use all available monetary tools” to guide inflation toward its targets of 7% (±2%) in Q4 2026 and 5% (±2%) in Q4 2028, on average.
The MPC’s latest rate cut reflects confidence in Egypt’s ongoing disinflation trend amid improving inflation expectations, stronger growth momentum, and continued stability in global prices. However, the CBE cautioned that risks remain tilted to the upside, particularly from potential regulated price adjustments and heightened geopolitical tensions, underscoring the need for vigilance as it calibrates the path of monetary easing.
