Egypt Daily News – The Monetary Policy Committee of the Central Bank of Egypt (CBE), during its third meeting of 2025, decided to cut interest rates on deposits and lending by 1%, marking the second interest rate cut this year.
This move follows the success of the central bank’s policies in reducing the annual core inflation rate to 10.4% in April 2025. The CBE had already cut rates in April by 225 basis points, bringing the overnight deposit rate, lending rate, and the main operation rate to 25.00%, 26.00%, and 25.50% respectively, the first cut since November 2020.
It also lowered the discount rate by 100 basis points to 24.50%. The decision reflects recent economic developments and forecasts since the committee’s last meeting.
Globally, growth expectations have declined since the April meeting, largely due to ongoing changes in global trade policies and the potential for further disruptions in supply chains. In response, many central banks in both advanced and emerging economies have adopted a more cautious approach to monetary policy amid continued uncertainty around economic growth and inflation.
Regarding global commodity prices, oil prices remain influenced by supply-side factors and expectations of weakened global demand. Prices of key agricultural commodities have declined more moderately, though climate-related risks persist.
Despite easing inflationary pressures, upside risks to inflation remain, including escalating geopolitical tensions and ongoing disruptions to global trade policies. Domestically, preliminary indicators for the first quarter of 2025 point to a continued economic recovery, with real GDP expected to grow by around 5.0% compared to 4.3% in the fourth quarter of 2024.
Output gap estimates suggest that real GDP remains below its potential, despite ongoing growth, indicating that demand-driven inflationary pressures are likely to stay limited.
This aligns with expectations of a downward inflation path in the short term, supported by the current monetary stance. However, economic activity is expected to reach full capacity by the end of the 2025/2026 fiscal year.
In the labor market, the unemployment rate declined slightly to 6.3% in Q1 2025, down from 6.4% in Q4 2024. Annual inflation dropped sharply in the first quarter, due to easing inflationary pressures, the effectiveness of tight monetary policy, favorable base effects, and the gradual fading of past shocks.
By April 2025, the annual headline and core inflation rates had stabilized at 13.9% and 10.4% respectively, mainly due to moderate monthly inflation trends driven by lower food prices, which helped offset the effects of increased non-food inflation resulting from administratively set price hikes.
Since these price movements are seen as temporary, underlying inflation has continued to trend downward since the beginning of the year and is gradually aligning with the CBE’s target for Q4 2026.
The slowdown in both headline and core inflation, along with declining underlying inflation, indicates improved inflation expectations. As a result, the annual inflation rate is expected to continue falling throughout the remainder of 2025 and into 2026. However, fiscal consolidation measures implemented or planned for 2025, along with relatively stable non-food inflation, may slow the pace of this decline.
It’s worth noting that the inflation outlook now faces fewer upside risks compared to April’s policy meeting. This is due to easing trade tensions, improved exchange rate conditions, and the normalization of the country’s risk index, allowing the central bank to continue its monetary easing cycle that began in the previous meeting.
