Egypt Daily News – The Monetary Policy Committee of the Central Bank of Egypt decided in its meeting on Thursday, April 17, 2025, to cut the overnight deposit and lending rates as well as the Central Bank’s main operation rate by 225 basis points to 25.00%, 26.00%, and 25.50% respectively. It also decided to cut the credit and discount rate by 225 basis points to 25.50%.
Globally, uncertainty regarding economic growth and inflation prospects has led central banks in some advanced and emerging market economies to adopt a cautious approach regarding the future path of monetary policy. While economic growth remains relatively stable, recent developments in global trade are expected to lower forecasts due to concerns over supply chain disruptions and weakened global demand.
Notably, oil prices have declined significantly due to supply-side factors and expectations of reduced global demand amid ongoing uncertainty about trade policies.
At the same time, prices of key agricultural commodities, especially grains, have experienced volatility caused by climate-related disruptions. However, inflation remains exposed to upward risks, including escalating geopolitical tensions and continued global trade disruptions stemming from rising protectionist policies.
Domestically, preliminary indicators for the first quarter of 2025 show that economic activity has continued to recover sustainably for the fourth consecutive quarter, with the growth rate surpassing the 4.3% recorded in the fourth quarter of 2024.
Real GDP growth in Q4 2024 was primarily driven by positive contributions from non-oil manufacturing, trade, and tourism sectors.
Nevertheless, output gap estimates indicate that actual economic activity is still below its full potential despite the continued growth throughout 2024. Economic activity is expected to reach its full capacity by the end of fiscal year 2025/2026.
Accordingly, current output gap estimates support the anticipated downward trend in inflation over the short term, with inflationary pressures from demand expected to remain limited due to the current monetary tightening.
In terms of annual inflation, the first quarter of 2025 saw a significant decline, due to a favorable base effect, the cumulative impact of monetary tightening, and the fading effect of previous shocks. Specifically, headline and core annual inflation declined to 13.6% and 9.4% in March 2025, respectively — the lowest level for core inflation in nearly three years.
The drop in headline inflation was mainly attributed to the sharp decline in food inflation, which fell from 45.0% in March 2024 to 6.6% in March 2025.
Non-food inflation also showed a relatively slower decline, falling from 25.7% in March 2024 to 18.9% in March 2025, due to its delayed response to previous shocks and the impact of fiscal consolidation measures. Furthermore, monthly inflation trends since the start of the year have begun to align more closely with historical patterns, indicating improved inflation expectations.
The sharp decline in headline annual inflation — by approximately 9.0 percentage points in Q1 2025 — consistent with expectations, has significantly tightened monetary conditions, creating ample room to begin a monetary easing cycle. Moreover, inflation is expected to continue declining during 2025 and 2026, albeit at a slower pace compared to the first quarter of 2025, due to the impact of implemented and planned fiscal consolidation measures for 2025, in addition to a slowdown in the decline of non-food price inflation.
However, inflation expectations remain subject to upside risks, given the possibility that fiscal consolidation measures may have stronger-than-expected effects, as well as uncertainties surrounding the impact of the ongoing U.S.-China trade war and potential escalation of regional geopolitical conflicts.
In light of the above, and taking current monetary conditions into account, the Monetary Policy Committee views the 225 basis-point reduction in the Central Bank’s key policy rates as appropriate to maintain a supportive monetary policy stance aimed at anchoring expectations and reinforcing the anticipated downward trend in inflation.
The committee will continue to assess its decisions regarding the duration and extent of the monetary tightening period on a meeting-by-meeting basis, emphasizing that these decisions are data-dependent and based on evolving risks.
The committee will closely monitor economic and financial developments and assess their potential implications on economic indicators, and will not hesitate to use all available tools to achieve its goal of price stability by steering inflation toward its target of 7% ±2 percentage points in Q4 2026.
