Egypt's Central Bank Slashes Rates by 100 Bps, Defying Forecasts to Fuel Growth

Egypt's Central Bank has cut key interest rates for the fifth time this year, signaling a shift in monetary policy as inflation cools. The regulator reduced the benchmark deposit rate by 100 basis points to 20% and the lending rate by the same amount to 21%. The move reflects the bank's confidence that inflation will remain on a downward trajectory, providing room for further easing.

The surprise rate cut caught most economists off guard, with only two of five surveyed by Bloomberg anticipating the move. The decision to ease monetary conditions follows a broader economic stabilization effort that included a 40% devaluation of the Egyptian pound and a $57 billion global bailout in early 2024. Authorities have since worked to balance lower borrowing costs with the need to attract foreign investment and maintain investor confidence.

Inflation in Egypt peaked at 38% in September 2023 but has since eased to 12.3% in November. The slowdown has provided the Central Bank with more flexibility to cut rates without undermining its broader goal of curbing price pressures. Analysts note that the reduction in fuel subsidies and IMF-backed reforms have helped anchor inflation expectations.

In a move that reflects Egypt's cautious economic strategy,

the central bank has been carefully calibrating rate cuts to manage the economy's recovery while avoiding a resurgence in inflation. Officials have gradually reduced rates in 2025, aiming to lower costly interest payments while maintaining an environment that attracts foreign portfolio investment. The bank's easing cycle has been supported by strong economic growth, which hit 4.4% in the 2024–2025 fiscal year.

The recent rate cut has also been viewed in the context of Egypt's ongoing negotiations with the IMF. The two sides reached a staff-level agreement on two delayed reviews of an expanded $8 billion loan program, which will unlock $2.5 billion in funding once approved by the IMF's executive board. The deal underscores the central bank's efforts to align monetary policy with fiscal consolidation and structural reforms.

What Analysts Are Watching

Market participants are now turning their attention to how Egypt will manage the next phase of its economic transformation. Mohamed Abu Basha of EFG Hermes has noted that the 100-basis-point cut maintains a "conservative stance" while allowing for further easing if needed. Analysts are monitoring the impact of the rate cut on the currency and capital inflows, particularly as Egypt continues to attract foreign investment through tax reforms and privatization efforts.

The Central Bank's cautious approach has been mirrored in its communication strategy, with officials emphasizing the need to monitor inflation trends and global economic conditions. The bank has also committed to third-party reviews of banking sector governance to ensure best practices and strengthen monetary policy transmission.

Risks to the Outlook

Despite the progress made, Egypt faces several headwinds that could complicate its recovery. High public debt remains a key concern, with the country still working to reduce its financing needs and place public debt on a sustainable downward path. Economists warn that any misstep in managing fiscal consolidation could lead to renewed pressure on the currency and inflation.

The global economic environment also presents challenges, with geopolitical tensions and shifting trade dynamics affecting regional markets. Egypt's economy, while showing resilience, must continue to attract foreign direct investment and implement structural reforms to sustain its growth trajectory. Investors are watching for further signs that the government can maintain its reform momentum without triggering a policy reversal.