Egypts Central Bank Cuts Key Rates by 100 Basis Points, Fourth of 2025

Egypt's central bank cut its key interest rates by 100 basis points in October 2025, marking the fourth reduction this year amid easing inflation and a stronger currency. The move aligns with market expectations and reflects the central bank's strategy to stimulate economic growth while maintaining price stability. With headline inflation at 12% in August—its lowest level in over three years—Egypt's policymakers see room to ease monetary conditions further, although upcoming fuel price hikes may pose new inflationary risks.

Introduction
The Central Bank of Egypt (CBE) has maintained a proactive easing cycle in 2025 to support economic recovery from one of the country's worst financial crises. The decision to cut interest rates for the fourth time this year is rooted in a broader effort to reduce interest burdens on the government and encourage local investment. With inflation cooling and the Egyptian pound strengthening, the CBE has leveraged these conditions to lower borrowing costs, aiming to boost private-sector activity and align with IMF-backed reforms.

The global economic environment has also played a role, with Egypt benefiting from a broader trend of rate cuts across emerging markets. These cuts have been driven by weakening inflation pressures and a shift in central bank priorities toward supporting growth amid global economic uncertainty.

Data Overview and Context
The CBE reduced the overnight deposit rate by 100 basis points to 21%, the overnight lending rate to 22%, and the main operation rate to 21.5%, all from their previous levels of 22%, 23%, and 22.5%, respectively. The decision was consistent with forecasts from economists, who had anticipated cuts in the range of 100 to 200 basis points.

| Indicator | Previous Value | Updated Value |
|-----------|----------------|---------------|
| Overnight Deposit Rate | 22% | 21% |
| Overnight Lending Rate | 23% | 22% |
| Main Operation Rate | 22.5% | 21.5% |
| Discount Rate | 22.5% | 21.5% |

Headline inflation in Egypt fell to 12% in August 2025 from 13.9% in July, marking a continued downward trend from the 38% peak in September 2023. Core inflation, which strips out volatile food and energy prices, also declined to 10.7% from 11.6%. The Egyptian pound has rebounded from a low of 51.7 per dollar in April 2025 to around 47.8 per dollar in October, bolstered by tourism and export earnings.

Analysis of Underlying Drivers and Implications
The central bank's rate cuts are underpinned by a combination of domestic and external factors. Domestically, Egypt's economy is showing signs of resilience, with real GDP growth averaging 4.4% in FY2024/25—nearly double the 2.4% recorded in the previous year. This growth is driven by non-oil manufacturing, tourism, and trade, supported by IMF-backed fiscal reforms.

Externally, Egypt benefits from a weaker dollar and global inflation moderation. The dollar's decline has improved Egypt's trade balance and reduced import costs, easing inflationary pressures. Additionally, the global shift toward accommodative monetary policy has created a favorable environment for emerging markets, with Egypt capitalizing on its strong fundamentals to attract foreign investment.

However, the central bank faces potential headwinds. Fuel price increases planned for later in October could push inflation higher, challenging the sustainability of the current easing cycle. The CBE has signaled that future monetary policy decisions will depend on data trends and risk assessments, indicating a flexible but cautious approach.

Market Reactions and Investment Implications
The rate cut has been positively received by local and foreign investors, with the Egyptian pound showing relative strength against the dollar. Bond yields have declined slightly, reflecting reduced inflation expectations and a more accommodative policy stance. The stock market has also benefited from improved investor sentiment, with sectors tied to infrastructure and manufacturing gaining traction.

For investors, the easing cycle suggests a more favorable environment for equities and local-currency bonds, provided inflation remains under control. However, investors should remain cautious about potential volatility from fuel price hikes and global economic shocks. Sectors that benefit from increased domestic consumption—such as construction, consumer goods, and tourism—are likely to see stronger performance.

Conclusion & Final Thoughts
Egypt’s fourth interest rate cut of 2025 underscores the central bank’s confidence in the country's economic recovery. With inflation cooling and the currency stabilizing, the CBE has created room to ease monetary policy, supporting growth and investment. However, upcoming fuel price increases and global uncertainties may limit the scope for further cuts.