Egypt’s Rate Cut Signals Shift in Monetary Policy as Inflation Eases

Egypt’s Central Bank of Egypt (CBE) marked a pivotal moment in its monetary policy on April 25, 2025, by cutting its benchmark overnight deposit rate by 225 basis points to 25%—the first reduction since November 2020. This move underscores a significant shift in economic conditions, driven by a sustained decline in inflation and improving macroeconomic stability. While global risks such as U.S. tariff policies and geopolitical tensions linger, the CBE’s decision reflects confidence in Egypt’s progress toward its inflation target of 7% ± 2% by Q4 2026.

The Case for Easing

The rate cut was long-awaited but carefully timed. Core inflation, a key gauge of underlying price pressures, fell to 9.4% in March 2025, down from 10% in February, signaling a stabilizing economy. Headline inflation, which includes volatile food and energy prices, stood at 13.6% annually in March—still above target but far below the 26% peak recorded in late 2024. This moderation, driven by falling food prices and base effects, gave the CBE room to act.

The decision also reflected broader economic resilience. Remittances surged to $20 billion in the first seven months of FY 2024/2025, doubling year-on-year, while foreign reserves stabilized at $47.39 billion as of February 2025. A stable exchange rate—hovering around 51 Egyptian pounds (EGP) per U.S. dollar—reduced import-related inflation risks.

Analysts and Markets React

Investors had anticipated a cut, but the 225-basis-point reduction exceeded consensus expectations of 1% to 3%. Analysts like Heba Mounir of HC Securities had called for a more cautious 1.5%–2% cut, citing lingering risks such as potential fuel subsidy adjustments or tariff-driven inflation spikes. The CBE’s statement acknowledged these risks but emphasized that disinflation and improved inflation expectations justified the move.

The decision aims to support domestic growth by lowering borrowing costs for businesses and households. Morgan Stanley analysts projected rates could fall to 17.25% by end-2025, while Goldman Sachs forecast a more conservative path to 20%–21%, underscoring the balancing act between growth and price stability.

Risks on the Horizon

Despite the progress, challenges remain. Global trade policies, particularly U.S. tariffs on Egyptian goods, could reignite inflation. The CBE also noted risks from potential administered price hikes, such as fuel subsidies, which account for a large portion of the budget. Additionally, while remittances and tourism (a $14 billion industry in 2023) provide a buffer, Egypt’s reliance on external financing leaves it vulnerable to shifts in global interest rates.

Implications for Investors

The rate cut opens opportunities for Egyptian equities and bonds. Sectors such as construction, consumer discretionary, and financial services—sensitive to borrowing costs—are likely to benefit. However, investors should monitor inflation data closely. The CBE’s April 15, 2025, inflation report, which will reveal April’s figures, will be critical to determining the pace of future cuts.

The move also signals a broader economic transition. After years of high rates aimed at curbing inflation, the CBE is now prioritizing growth without sacrificing stability. This shift could attract foreign capital, though geopolitical risks and fiscal discipline will remain watchpoints.

Conclusion

Egypt’s first rate cut in over five years marks a milestone in its economic recovery. With inflation tamed and key economic indicators improving, the CBE has signaled its confidence in the path ahead. However, the road to the 7% inflation target remains fraught with global uncertainties. For investors, the decision offers a cautious green light—opportunities exist, but vigilance is required. As the CBE’s statement noted, the journey toward price stability will continue, but the first step has been taken.