Ahmed Kamel – Egypt Daily News
Egypt’s Central Bank has moved to ease monetary policy, announcing a 1 percentage point cut in key interest rates following a steady decline in inflation and improving economic indicators. The decision was taken at the Monetary Policy Committee’s meeting on Thursday, December 25, 2025.
The committee lowered the overnight deposit rate to 20.00 percent, the overnight lending rate to 21.00 percent, and the main policy operation rate to 20.50 percent. The credit and discount rate was also reduced by 100 basis points to 20.50 percent. The move reflects the central bank’s assessment of recent inflation trends, economic growth, and global financial conditions.
At the global level, the central bank noted that economic growth continues to recover at a moderate pace, although uncertainty remains due to trade policy risks, ongoing geopolitical tensions, and weaker global demand. Inflation dynamics worldwide have remained largely stable, with central banks in both advanced and emerging economies opting for cautious and gradual monetary easing. Commodity markets have also played a role, as global oil prices declined due to supply exceeding demand, while agricultural commodity prices showed mixed trends. Despite these developments, risks persist, particularly from potential supply chain disruptions and escalating geopolitical conflicts.
Domestically, the Central Bank of Egypt estimates that real GDP growth reached around 5.0 percent in the fourth quarter of 2025, slightly lower than the 5.3 percent recorded in the previous quarter. Growth during the third quarter of the year was driven mainly by non-oil manufacturing, trade, and telecommunications. While economic activity remains resilient, the current growth path is expected to support the anticipated short-term decline in inflation, as demand-side inflationary pressures remain contained under the existing monetary stance.
Inflation developments were a key factor behind the rate cut. Headline annual inflation resumed its downward trend, falling to 12.3 percent in November 2025, despite recent increases in fuel prices. This decline was largely driven by a sharp drop in food inflation, which fell to just 0.7 percent year-on-year, its lowest level in more than four years. Core inflation, which excludes volatile items, stood at 12.5 percent, reflecting higher prices for non-food goods and services. On a monthly basis, headline and core inflation recorded moderate increases of 0.3 percent and 0.8 percent, respectively, indicating improving inflation expectations and the gradual fading of previous economic shocks.
Based on these trends, the central bank expects headline inflation to stabilize near current levels in the final quarter of 2025, averaging around 14 percent for the year, a significant improvement compared to 28.3 percent in 2024. Looking ahead to 2026, inflation is projected to continue declining and approach the central bank’s target range by the fourth quarter of the year. However, the pace of disinflation may be tempered by slower declines in non-food inflation and the impact of fiscal consolidation measures. Global geopolitical tensions also remain a potential upside risk to inflation.
In light of the overall economic and inflation outlook, the Monetary Policy Committee concluded that a 100-basis-point reduction in policy rates was appropriate to maintain a monetary stance that supports declining inflation while anchoring expectations. The committee emphasized that future decisions on monetary easing will depend on evolving data, forecasts, and associated risks.
The central bank reaffirmed its commitment to closely monitoring economic and financial developments and to using all available policy tools to achieve price stability. Its medium-term objective remains guiding inflation toward its target of 7 percent, with a margin of plus or minus 2 percentage points, by the fourth quarter of 2026 on average.
