Egypt Daily News – The Central Bank of Egypt starts 2025 by keeping interest rates unchanged for the seventh time at their highest historical level for the seventh consecutive time during its first Monetary Policy Committee (MPC) meeting of the year on Thursday, aligning with some market experts’ expectations.
Over the past year, the CBE held eight interest rate meetings, deciding in six consecutive sessions to maintain the overnight deposit and lending rates and the main operation rate at 27.25%, 28.25%, and 27.75%, respectively, following significant hikes of 800 basis points in February and March.
Inflationary Risks and Economic Outlook
In its accompanying statement, the CBE highlighted “increased upside risks to inflation compared to the previous meeting (in December), due to growing uncertainty regarding global and regional outlooks, trade protectionist policies, and geopolitical tensions.”
The central bank expects inflation in Egypt to continue declining but at a slower pace, considering the anticipated impact of fiscal consolidation measures. It projected that “monthly inflation rates will approach historical levels in the medium term, indicating improved inflation expectations.”
The MPC reiterated that keeping interest rates unchanged is appropriate at this stage to maintain a restrictive monetary policy stance and ensure a significant and sustainable decline in inflation.
Inflation and Future Interest Rate Expectations
In its last 2024 meeting, the CBE extended its inflation target horizon to Q4 2026 and Q4 2028, setting targets of 7% (±2%) and 5% (±2%) on average, respectively. This aligns with its gradual progress toward adopting a comprehensive inflation-targeting framework.
Economists advocating for unchanged rates cite potential seasonal inflationary pressures during the upcoming Ramadan period, alongside underlying inflationary risks stemming from U.S. trade protectionist policies under President Donald Trump.
Inflation Trends in Egypt
Egypt’s urban inflation rate slightly slowed in January, reaching 24% year-on-year, down from 24.1% in December, according to data from the Central Agency for Public Mobilization and Statistics (CAPMAS). This marks the third consecutive month of inflation deceleration after government-driven price hikes for fuel, train tickets, and metro fares impacted inflation readings between August and October.
Earlier, the government increased the price of subsidized bread by 300% in May 2024, marking the first such move in over three decades.
Market Expectations
Mounsef Morsi, Managing Director and Head of Research at CI Capital, expects the central bank to accelerate interest rate cuts in the second half of the year, forecasting inflation to settle around 15% by year-end.
Mohamed Abu Basha, Chief Economist at EFG Holding, stated that keeping rates unchanged is essential to combat high inflation, ruling out any rate cuts until inflation falls below 20%.
