The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided in its meeting today to cut the overnight deposit and lending rates, as well as the main operation rate, by 225 basis points. The new rates are set at 25.00% for the deposit rate, 26.00% for the lending rate, and 25.50% for the main operation and discount rate.

Key Drivers Behind the Decision

Significant Drop in Inflation Rates:

Annual headline and core inflation declined to 13.6% and 9.4% respectively in March 2025, the lowest core inflation rate in nearly three years. The decline was largely driven by favorable base effects and the cumulative impact of tight monetary policy.

Sharp Fall in Food Inflation:

Annual food inflation dropped from 45.0% in March 2024 to 6.6% in March 2025. Meanwhile, non-food inflation slowed from 25.7% to 18.9%, reflecting a delayed response to earlier shocks and fiscal consolidation efforts.

Sustained Economic Recovery:

Preliminary data indicates that Egypt’s economy continued its recovery for the fourth consecutive quarter. Real GDP growth in Q4 2024 exceeded 4.3%, supported by positive contributions from non-oil manufacturing, trade, and tourism.

Improved Inflation Outlook:

Economic activity is expected to reach full potential by the end of fiscal year 2025/2026, reinforcing the short-term downward trajectory of inflation amid subdued demand-side pressures.

Global Context

Global economic uncertainty remains elevated, particularly concerning the growth and inflation outlooks in both advanced and emerging markets.Oil prices have declined due to supply-side factors and weaker global demand expectations.Agricultural commodity prices have been volatile, mainly due to climate-related disruptions.Geopolitical tensions and trade protectionism continue to pose upside risks to global inflation.

Outlook

Inflation is expected to continue its downward trend throughout 2025 and 2026, albeit at a slower pace due to the impact of fiscal consolidation measures and gradual easing in non-food price inflation.The MPC will continue to assess the appropriate stance of monetary policy in each meeting, emphasizing that decisions will be data-dependent and risk-sensitive.The CBE remains committed to achieving its inflation target of 7% ± 2 percentage points by Q4 2026.

This rate cut reflects the CBE’s confidence in the improving inflation outlook and sustained economic recovery. It may ease borrowing costs and support investment activity, though global uncertainties continue to warrant close monitoring.