Cairo – Mubasher: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) has decided, on 22 May 2025, to reduce key interest rates by 100 basis points (bps)
The CBE cut overnight deposit and lending rates to 24% and 25%, respectively, according to an official statement.
Furthermore, the rate of the main operation as well as the discount rate were reduced to 24.50% each.
“This decision reflects the most recent outlook and assessment of economic conditions since the previous MPC meeting,” the CBE said.
Domestically, the CBE forecast for the first quarter (Q1) of 2025 suggests a sustained recovery in economic activity, with real GDP growth projected at around 5% percent compared to 4.3% in Q4-24.
The central bank further said that 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.
It added that this aligns with the expected disinflation path in the short term, and is supported by the current monetary stance. Nonetheless, the economy is expected to reach its potential by end of fiscal year (FY) 2025/2026.
In terms of the labor market, the unemployment rate decreased marginally to 6.3% in Q1-25, compared to 6.4% in Q4-24.
The MPC will continue to monitor economic and financial developments, and will not hesitate to utilize all tools at its disposal to achieve its price stability mandate, steering inflation towards its target of 7% (± 2 percentage points), on average, in Q4-26.
Inflation Rate
Regarding annual inflation, the CBE said it decelerated significantly in Q1-25 due to muted inflationary pressures, monetary tightening, favorable base effects, and the fading impact of previous shocks.
By April 2025, both annual headline and core inflation largely stabilized at 13.9% and 10.4%, respectively. This was primarily driven by subdued monthly dynamics due to declining food prices, which helped offset the rise in non-food inflation resulting from adjustments to administered prices.
Owing to the transitory nature of these pressures, along with the perceived improvement in inflation expectations, underlying inflation dynamics have eased and remain on a declining path since the beginning of the year, gradually approaching their long-term trend consistent with achieving the CBE’s target in Q4-26.
Moreover, 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 CBE stated that upside risks surrounding the inflation outlook have eased relative to April’s MPC meeting in light of unwinding trade tensions, current exchange rate dynamics, and the normalization of sovereign risk levels, enabling further progress in the easing cycle initiated in the previous MPC meeting. Nevertheless, risks remain concentrated around uncertainty regarding global trade protectionism, possible escalation of regional conflicts and higher-than-anticipated pass-through of fiscal consolidation to domestic prices.
