The Central Bank of Egypt Decides to Hold Interest Rates

The Central Bank of Egypt Decides to Hold Interest Rates

 

The Central Bank of Egypt Decides to Hold Interest Rates

The Monetary Policy Committee of the Central Bank of Egypt (CBE) decided on Thursday to maintain the overnight deposit and lending rates, and the rate of the central bank's main operation, at 24%, 25%, and 24.5%, respectively. It also decided to maintain the credit and discount rates at 24.50%.

The committee said in a statement that this decision reflects the latest economic developments and expectations since the previous MPC meeting. The statement explained that global growth expectations have declined since the beginning of the year, primarily due to continued uncertainty surrounding global trade policies and the potential for renewed geopolitical tensions.

It added that central banks in both advanced and emerging economies have adopted a cautious approach to monetary policy amid the uncertainty surrounding inflation and economic growth. Regarding global commodity prices, oil prices have recently experienced sharp fluctuations, largely influenced by supply factors and expectations of lower global demand.

As for agricultural commodity prices, they have recorded a slight decline, supported by favorable seasonal trends. However, risks to the inflation path remain, including geopolitical tensions, the potential for continued disruptions in global trade policies, and shocks resulting from climate change.

Egyptian Economic Growth

The statement stated that, on the domestic front, preliminary indicators from the Central Bank of Egypt for the second quarter of 2025 indicate a sustained recovery in economic activity, with real GDP growth expected to be close to the annual rate recorded in the first quarter of 2025, reaching 4.8%, compared to 2.4% in the second quarter of 2024.

Regarding the output gap, estimates indicate that it is gradually narrowing, although it remains slightly negative, with economic activity expected to reach its maximum productive capacity by the end of the 2025-2026 fiscal year. Demand-side inflationary pressures are expected to remain limited, supported by current monetary policy.

Inflation in Egypt

The statement indicated that the annual headline inflation rate in Egypt declined during the second quarter of 2025 to 15.3%, compared to 16.5% in the first quarter of 2025, continuing its downward trend. This is attributed to the largely stable monthly inflation trends, the appropriate level of monetary tightening, and the fading of previous shocks.

According to the statement, both annual headline and core inflation rates declined in June 2025 to 14.9% and 11.4%, respectively. This is primarily due to monthly inflation trends, with headline and core inflation recording -0.1% and -0.2%, respectively. This can be largely explained by lower food prices and stable non-food inflation. These favorable developments in headline and core inflation contributed to the improved inflation outlook.

Inflation Forecast

The Central Bank of Egypt expects annual headline inflation to stabilize at its current levels for the remainder of 2025 before gradually declining in 2026. This depends on the extent of changes in non-food prices and fiscal consolidation measures (such as changes in administratively determined prices) and their impact on domestic prices.

The bank continued: "However, it is preferable to be patient in proceeding with the monetary easing cycle, especially since this approach allows sufficient time to assess the potential impact of the recently announced legislative changes, including the VAT amendments."

The Monetary Policy Committee stated that it believes that keeping the central bank's key interest rates unchanged is appropriate to sustain the downward trend in inflation. The Committee will continue to evaluate its decisions on a meeting-by-meeting basis, emphasizing that these decisions are based on expectations, surrounding risks, and emerging data.

The Committee will also continue to closely monitor economic and financial developments and will not hesitate to use all available tools to achieve the inflation target of 7% (±2 percentage points) on average during the fourth quarter of 2026.