Egypt cuts interest rates for first time in nearly five years

Egypt’s Central Bank cut key interest rates by 225 basis points on Thursday, marking its first rate cut since 2020.

The move follows seven consecutive meetings where rates were held steady and signals the beginning of a potential easing cycle as inflation continues to decline.

The Monetary Policy Committee (MPC) reduced the overnight deposit rate to 25 percent, the lending rate to 26 percent, and the main operation rate to 25.5 percent. The credit and discount rate was also cut to 25.5 percent.

This decision came in line with expectations from a Reuters poll earlier this week, where analysts had predicted a 200 basis point cut. The central bank, however, exceeded those expectations, citing improved inflation dynamics.

According to the MPC, annual headline inflation has been falling steadily since peaking at a record 38 percent in September 2023. Inflation dropped to 24 percent in January, then fell further to 12.8 percent in February and 13.6 percent in March.

The committee attributed this decline to a "sizable favorable base effect, cumulative monetary tightening, and the fading impact of previous shocks."

The bank said it expects inflation to continue trending downward through 2025 and 2026, albeit at a slower pace, supported by ongoing and planned fiscal consolidation.

"The declining inflation afforded ample room for commencing the easing cycle," the committee noted.

Economic growth also appears to be gaining momentum. Preliminary data for the first quarter of 2025 shows sustained recovery, with GDP growth exceeding the 4.3 percent registered in the final quarter of 2024. This marks the fourth consecutive quarter of economic expansion.

The last policy change before Thursday’s cut occurred in March 2024, when the Central Bank raised rates by 600 basis points and devalued the Egyptian pound sharply. Those steps were part of a broader economic reform plan tied to an $8 billion financial support package from the International Monetary Fund (IMF).