Egypt’s Rate Cut Signals Shift in Monetary Policy Amid Inflation Relief

Egypt’s Central Bank has embarked on a pivotal shift in monetary policy, marking the first interest rate reduction since November 2020. The Monetary Policy Committee (MPC) slashed benchmark rates by a robust 225 basis points in April 2025, lowering the overnight deposit rate to 25%, the overnight lending rate to 26%, and the main operation rate to 25.5%. This move reflects growing confidence in the downward trajectory of inflation and underscores efforts to stimulate economic growth after years of high borrowing costs.

Inflation Relief Fuels the Turn

The decision hinges on a sustained decline in core inflation, which fell to 9.4% in March 2025—down from 10% in February—while headline inflation eased to 12.84% in February. Though still above the CBE’s 7% ± 2% target, the data signals progress toward its 2026 Q4 goal. Analysts note that base-year effects and reduced domestic demand pressures have played critical roles in this moderation.

This visual would show a clear downward trend, with 2023’s peak at over 20% declining steadily to under 13% by early 2025. Such a trajectory supports the CBE’s assertion that inflation is now on a path toward stabilization.

Balancing Global Risks and Domestic Growth

The MPC emphasized that geopolitical uncertainties, including U.S. trade policies and global supply chain dynamics, necessitated a cautious approach. While the rate cut aims to lower borrowing costs for businesses and households, the CBE remains vigilant to external shocks. For instance, Egypt’s net international reserves stood at $47.4 billion as of February 2025—a robust figure that reflects improved external liquidity, partly driven by a 51.3% surge in remittances in 2024.

This would reveal whether Egyptian equities have responded positively to the rate cut, potentially signaling investor optimism about economic recovery.

Analysts and Institutions Weigh In

Consensus forecasts had anticipated a 100–300 basis point cut, with most aligning closely with the 225 basis point reduction. BNP Paribas highlighted the need for gradual easing due to elevated real interest rates and global volatility, while Capital Economics cautioned that future cuts may slow as inflation risks linger. The Reuters poll also indicated broad support, with economists predicting a 2% cut on average.

The Bigger Picture: A New Era in Monetary Policy?

The rate cut marks a strategic pivot from years of aggressive rate hikes aimed at curbing inflation. The CBE’s long-term goal of achieving 5% inflation by 2028 relies on sustained economic growth and financial stability. Progress in financial inclusion—now at 74.8%—also hints at broader access to credit, which could amplify the stimulative effects of lower rates.

Conclusion: A Cautious but Necessary Step

Egypt’s April 2025 rate cut is a landmark decision that reflects both domestic progress and global caution. With inflation falling steadily and reserves bolstered by remittance inflows, the CBE has seized an opportunity to ease borrowing costs without jeopardizing price stability. However, the path forward remains fraught with risks—from U.S. trade policies to commodity price swings—that could test the central bank’s resolve.

The data tells a compelling story: a 51.3% jump in remittances, $47.4 billion in reserves, and a 74.8% financial inclusion rate all point to a strengthening economy. Yet, with headline inflation still above 12% and core inflation hovering near double digits, the CBE must walk a tightrope. Investors should watch closely for the next inflation reports and global developments, as they will determine whether this rate cut is the start of a sustained easing cycle—or a one-off adjustment in turbulent times.

In the end, Egypt’s policymakers have shown they can adapt. Whether this shift pays off hinges on their ability to balance growth and stability in an unpredictable world.