Introduction to Monetary Policy
The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) recently convened to discuss and decide on the country’s key interest rates. The committee chose to maintain the current interest rates, including the overnight deposit rate of $21.00%$, the lending rate of $22.00%$, and the main operation rate of $21.50%$. This decision reflects the MPC’s assessment of domestic inflation forecasts.
Global and Domestic Economic Backdrop
Globally, economic growth is ongoing but is being hindered by geopolitical tensions and uncertainty in trade policies. As a result, central banks around the world are taking a cautious approach. While commodity prices, such as oil, are relatively stable, the CBE has emphasized that inflation still faces potential risks, primarily due to possible supply chain disruptions.
On the domestic front, the CBE reported a slight increase in real GDP growth to $5.2%$ in Q3 2025, driven primarily by strong performance in the non-petroleum manufacturing, trade, and tourism sectors. However, the unemployment rate rose slightly to $6.4%$ during the same quarter.
Inflation on the Rise
Both annual headline inflation and core inflation increased in October 2025, with rates of $12.5%$ and $12.1%$, respectively. The monthly increase was attributed to a rise in non-food prices, particularly in the services sector, which offset the moderation in food price inflation. The CBE has stressed the need for further monthly inflation decline to meet its official target.
CBE’s Inflation Forecast and Upside Risks
The CBE forecasts that annual headline inflation will temporarily rise in late Q4 2025 due to the impact of energy price increases, before declining again in the second half of 2026 toward the bank’s target. However, the inflation outlook is subject to significant upside risks, including escalating geopolitical tensions, stubborn services inflation, and unforeseen effects from fiscal consolidation measures.
Maintaining a Cautious Stance
In light of these persistent risks, the MPC has decided to maintain a "wait-and-see" approach by holding interest rates steady. This decision aims to contain inflationary pressures, anchor market expectations, and ensure inflation remains on a downward path. The MPC has reaffirmed its commitment to using all necessary tools to achieve its ultimate inflation target of $7% pm 2$ percentage points by Q4 2026.
Conclusion
In conclusion, the CBE’s decision to maintain key interest rates reflects the committee’s cautious approach to managing inflation and promoting economic growth. With the current global and domestic economic backdrop, the CBE must carefully balance its monetary policy to achieve its target inflation rate. As the economy continues to evolve, it is essential for the CBE to remain vigilant and adapt its policies as needed to ensure a stable and prosperous economic future.
