URGENT: Egypt cuts key interest rates by 100 basis points

Egypt’s central bank slashed its key interest rates by 100 basis points on Thursday, citing easing inflationary pressures and a strengthening economic recovery, as it continues its gradual monetary easing cycle.

The Central Bank of Egypt’s Monetary Policy Committee (MPC) lowered the overnight deposit rate to 24.00 per cent, the overnight lending rate to 25.00 per cent, and the rate of the main operation and discount rate to 24.50 per cent, marking its second consecutive rate cut.

Positive Outlook

The MPC said the decision reflects updated economic assessments that indicate sustained growth momentum alongside a disinflation trend. The central bank’s nowcast showed Egypt’s real GDP growing by about 5.0 per cent in the first quarter of 2025, up from 4.3 per cent in the previous quarter, with the economy expected to reach its full potential by the end of fiscal year 2025/26.

“Output gap estimates indicate that real GDP remains below potential, despite continued increase in economic activity, indicating that demand-side inflationary pressures will remain subdued. This aligns with the expected disinflation path in the short term, and is supported by the current monetary stance.” the MPC statement read.

Headline inflation and core inflation stabilised at 13.9 per cent and 10.4 per cent, respectively in April, driven largely by falling food prices and the waning impact of earlier supply shocks. The CBE noted that inflation expectations have improved, and underlying price pressures have been gradually declining since the start of the year.

While the outlook for inflation has improved, the central bank warned that risks remain, particularly from global trade tensions, potential regional instability, and fiscal consolidation measures that may add temporary pressure to domestic prices.

“The moderating trend in headline and core inflation, coupled with easing underlying dynamics, suggests an improvement in inflation expectations.”

Accordingly, inflation is expected to continue declining throughout the remainder of 2025 and 2026, albeit at a constrained pace given the expected drag from implemented and planned fiscal consolidation measures in 2025, in addition to the relative persistence of non-food inflation

The central bank reaffirmed its commitment to anchoring inflation at 7 per cent (±2 per cent) on average by the fourth quarter of 2026. It said future rate decisions will remain data-dependent and guided by evolving economic conditions.

Thursday’s move follows a 225-basis-point rate cut in April, as the central bank shifts toward stimulating growth after months of tight monetary policy aimed at stabilising inflation and the currency.

Attribution: Amwal Al Ghad English