Egypt’s Central Bank Cuts Interest Rates, Signals Optimistic Inflation Outlook
The Central Bank of Egypt (CBE) has decided to cut key interest rates by 100 basis points, citing improving inflation dynamics and an outlook that supports a continued disinflationary trend.
In its statement issued on Thursday, the Monetary Policy Committee (MPC) announced a reduction in the overnight deposit rate to 20%, the overnight lending rate to 21%, and the main operation rate to 20.5%. The discount rate was also lowered by 100 basis points to 20.5%.
The central bank said the decision reflects the MPC’s assessment of recent inflation developments and updated forecasts since its previous meeting, noting that the current rate cut is appropriate to maintain a monetary policy stance that supports the downward trajectory of inflation.
At the global level, the CBE highlighted that economic growth has continued its gradual recovery, although prospects remain clouded by uncertainty over trade policies, persistent geopolitical tensions, and a slowdown in global demand. Inflation dynamics globally have remained broadly stable, as central banks in advanced and emerging economies continue to adopt a cautious approach toward gradual monetary easing.
Commodity markets have also played a role, with oil prices declining amid global supply exceeding demand, while agricultural commodity prices showed mixed trends. Nevertheless, the bank cautioned that inflation expectations remain exposed to upside risks, particularly from potential supply chain disruptions and escalating geopolitical tensions.
On the domestic front, the CBE estimated that real GDP growth reached around 5% in the fourth quarter of 2025, compared with 5.3% in the previous quarter. Growth in the third quarter of 2025 was primarily driven by positive contributions from non-oil manufacturing, trade, and telecommunications.
Despite sustained economic growth, the central bank noted that the current output trajectory continues to support the expected decline in inflation over the short term, with demand-side inflationary pressures remaining contained under the prevailing monetary policy framework.
Regarding inflation trends, headline annual inflation resumed its downward path, registering 12.3% in November 2025, despite the recent increase in fuel prices. This decline was largely attributed to a sharp drop in annual food inflation, which fell to 0.7%, its lowest level in more than four years. Meanwhile, core inflation stood at 12.5%, driven mainly by higher prices of non-food goods, particularly services.
On a monthly basis, headline and core inflation recorded 0.3% and 0.8%, respectively, in November 2025. The moderation in recent monthly inflation readings, compared with typical seasonal patterns, indicates improving inflation expectations and the gradual dissipation of the effects of previous shocks.
Looking ahead, the CBE expects headline inflation to stabilize near current levels in the fourth quarter of 2025, averaging around 14% for the year, down from 28.3% in 2024. For 2026, inflation is projected to continue declining and approach the central bank’s target by the fourth quarter of 2026, although the pace of disinflation may be tempered by the slow easing of non-food inflation and the impact of fiscal consolidation measures. Global geopolitical developments remain a key upside risk to the inflation outlook.
In light of these developments, the MPC concluded that a 100-basis-point cut in policy rates is consistent with anchoring inflation expectations and reinforcing the disinflationary path. The committee reaffirmed that future decisions on the pace of monetary easing will remain data-dependent, guided by inflation forecasts and associated risks.
The CBE emphasized that it will continue to closely monitor economic and financial developments and stands ready to use all available tools to achieve price stability, steering inflation toward its target of 7% ± 2 percentage points on average in the fourth quarter of 2026.
Commenting on the decision, Mohamed Anis, member of the Egyptian Society for Economics and Legislation, said the central bank’s current monetary policy approach avoids surprises and aligns closely with market expectations regarding the interest rate trajectory.
In an interview with Al Arabiya Business, Anis noted that expectations over the past year pointed to cumulative interest rate cuts of around 7% during 2025, adding that rates had already been reduced by 6.25% prior to the latest decision. He also attributed the moderation in inflation partly to the postponement of fuel and electricity subsidy reforms following discussions with the International Monetary Fund, as well as to lower global oil prices, which eased pressure on the state budget.
Anis projected that the rate-cutting cycle could continue into 2026, with additional reductions of 5% to 6% possible, provided that inflation trends remain on track and external conditions stay supportive.