Introduction to Egypt’s Monetary Policy
The Central Bank of Egypt (CBE) has made a significant move by cutting its key policy rates by 100 basis points. This decision was made during the Monetary Policy Committee (MPC) meeting, where they took into account various domestic and global factors.
Reasons Behind the Rate Cut
The CBE cited improved inflation dynamics and a stronger growth outlook as the main reasons for the rate cut. Domestically, the real GDP growth accelerated to 5.0 percent in the second quarter of 2025, which is up from 4.8 percent in the previous quarter. This growth was driven by strong performance in non-petroleum manufacturing, tourism, and trade.
Impact on Inflation
In terms of inflation, the annual headline inflation slowed down to 12.0 percent in August 2025, compared to 13.9 percent in July. Core inflation also eased to 10.7 percent from 11.6 percent. On a monthly basis, headline and core inflation rose by only 0.4 percent and 0.1 percent, respectively. This reflects the declining food prices and stable non-food categories.
Projections and Forecasts
The CBE projections show that inflation is expected to average between 12 and 13 percent in the third quarter of 2025, compared to 15.2 percent in the previous quarter. For the full year, headline inflation is forecast at around 14 percent, before gradually converging towards the CBE’s target of 7 percent (± 2 percentage points) by the fourth quarter of 2026 and 5 percent (± 2 percentage points) by the fourth quarter of 2028.
Global Economic Trends
Globally, growth is showing signs of recovery, while inflation expectations remain stable. Central banks in both advanced and emerging markets continue to cautiously ease policy, with oil prices largely stable and agricultural prices contained despite divergent movements.
Future Approach
The MPC said it will maintain a data-driven approach in upcoming meetings, carefully assessing risks including potential fiscal adjustments and heightened geopolitical tensions. This means that the CBE will continue to monitor the economy and make decisions based on the latest data and trends.
Conclusion
In conclusion, the Central Bank of Egypt’s decision to cut its key policy rates is a significant move that reflects the improved inflation dynamics and stronger growth outlook. The CBE’s projections and forecasts indicate that inflation is expected to decrease in the coming years, and the bank will continue to monitor the economy and make data-driven decisions. This move is expected to have a positive impact on the Egyptian economy, and it will be interesting to see how it unfolds in the coming months and years.
