Ahmed Kamel – Egypt Daily News
Egypt’s Central Bank lowered its key interest rates by one percentage point on Thursday, signaling growing confidence that inflationary pressures are gradually subsiding, even as policymakers remain cautious about persistent risks from global tensions and domestic fiscal reforms.
The Monetary Policy Committee (MPC) decided at its meeting on February 12, 2026, to reduce its main policy rates by 100 basis points. As a result, the overnight deposit rate was cut to 19.0 percent and the overnight lending rate to 20.0 percent. The main operation rate now stands at 19.5 percent, while the credit and discount rate was also reduced to 19.5 percent.
In a parallel move aimed at supporting liquidity in the banking system, the Central Bank’s board of directors lowered the required reserve ratio for commercial banks from 18 percent to 16 percent. The reserve requirement determines the share of deposits banks must hold at the Central Bank, and a reduction typically frees up additional funds for lending and investment.
The decisions reflect what the committee described as its latest assessment of inflation trends and future expectations since its previous meeting. Recent data suggest that price pressures are moderating, though not uniformly across all sectors of the economy.
According to figures released earlier this week by the Central Bank, annual core inflation which excludes volatile items such as food and energy, slowed to 11.2 percent in January 2026, down from 11.8 percent at the end of December 2025. On a monthly basis, core consumer prices rose by 1.2 percent in January, compared with a modest 0.2 percent increase in December, indicating some short-term volatility despite the broader downward trend.
Official statistics from the Central Agency for Public Mobilization and Statistics (CAPMAS) showed a similar pattern. Annual urban inflation eased to 11.9 percent at the end of January, down from 12.3 percent in December. For the country as a whole, annual inflation reached 10.1 percent, slightly lower than the previous reading of 10.3 percent. However, monthly headline inflation accelerated to 1.5 percent in January from 0.1 percent a month earlier, reflecting price adjustments in several categories.
The Central Bank reiterated that it expects inflation to continue declining and approach its medium-term target of 7 percent, plus or minus two percentage points, on average by the fourth quarter of 2026. Achieving that objective, however, depends on a delicate balance between domestic reforms and external factors.
Policymakers noted that the pace of disinflation remains somewhat constrained by the slow retreat of non-food inflation, which has proven stickier than headline figures suggest. In addition, ongoing fiscal consolidation measures part of broader efforts to stabilize public finances, may exert temporary upward pressure on prices as subsidies are rationalized and administered prices adjusted.
Beyond domestic considerations, the Central Bank highlighted global geopolitical tensions as a continuing source of upside risks to inflation forecasts. Disruptions to supply chains, fluctuations in commodity prices, and volatility in global financial markets could all complicate the path toward price stability, particularly for an import-dependent economy such as Egypt’s.
The rate cut marks a notable shift after an extended period of tight monetary policy aimed at containing one of the sharpest inflationary waves in recent years. Higher borrowing costs had weighed on private sector activity and credit growth, while supporting the currency and helping to anchor inflation expectations. By easing policy now, the Central Bank appears to be seeking a balance between sustaining the disinflation process and reviving economic momentum.
Financial analysts say the reduction in both policy rates and reserve requirements may provide measured relief to businesses and households facing elevated financing costs. Lower rates could stimulate investment and consumption, though their full impact will depend on broader economic conditions and confidence levels.
For now, the Central Bank has signaled that its approach remains data-driven. While recent inflation readings have offered reassurance, the MPC’s statement underscores that the path ahead remains contingent on domestic reforms and global developments. As Egypt moves through 2026, monetary authorities will be closely monitoring price dynamics to determine whether further easing is warranted or whether renewed pressures require a recalibration of policy.
