Introduction to Monetary Policy in Egypt
The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) is set to hold its final meeting of 2025. This meeting is crucial as it will decide on the fate of the CBE’s benchmark rates, which guide short-term interest-rate movements on the Egyptian pound. The decision comes after the Committee opted to keep rates unchanged at its previous meeting on 20 November.
Background on Interest Rates
At the November meeting, the rates were kept at 21% for deposits, 22% for lending, and 21.5% for both the credit and discount rate and the main operation rate. This decision followed cumulative cuts of around 6.25% earlier in the year, implemented in four stages: 2.25% in April, 1% in May, 2% in August, and 1% in October.
Inflation Developments
The MPC based its November decision on its assessment of inflation developments and the outlook since the previous meeting in October. Inflation expectations remain exposed to upside risks, both globally and domestically, including the potential escalation of geopolitical tensions and the relative persistence of services inflation. The Committee stressed that such risks require close monitoring of inflation trends and their implications over the forecast horizon, warranting a cautious approach to monetary easing.
Assessing Inflation
The MPC adopted a wait-and-see approach by keeping policy rates unchanged, considering this stance appropriate for containing inflationary pressures, anchoring expectations, and reinforcing the downward trajectory of inflation. The Committee reiterated that monetary policy decisions will continue to be assessed on a meeting-by-meeting basis, depending on the evolving outlook, associated risks, and incoming data.
Expectations of Investment Banks and Experts
A number of investment banks forecast an interest-rate cut of between 50 and 100 basis points at the upcoming meeting. A Reuters poll of 14 economists also showed expectations that the CBE would cut its key policy rates by 100 basis points, citing the slight slowdown in inflation in November. Prominent banking expert Mohamed Abdel Aal expects the MPC to prioritize economic growth and resume the easing cycle by cutting interest rates by between 100 and 200 basis points.
Real Interest Rate
According to Abdel Aal, Egypt’s real interest rate remains high at around 8.75%, a contractionary level that constrains growth. Reducing rates would help lower borrowing costs for businesses and households, encourage investment and spending, and support economic expansion at a time of relative inflation stability. He also highlighted the fiscal impact, noting that every 1% cut in interest rates reduces government debt-servicing costs by around EGP 70bn, easing pressure on the state budget.
Egypt’s External Position
HC Securities and Investment expects the CBE to cut interest rates by 150 basis points. Heba Mounir, the firm’s macroeconomic analyst, said Egypt’s external position has shown resilience, with net international reserves rising by 0.29% month-on-month and by around 7% since the start of the year to a record $50.2bn in November.
Economic Indicators
Mounir noted that net foreign assets in the banking sector increased by around 9% month-on-month to $22.7bn in October, while remittances from Egyptians abroad rose by 26% year-on-year to $3.7bn. In addition, Egypt’s one-year credit default swap spread fell sharply to 138 basis points, and Suez Canal revenues increased by about 17% year-on-year during the first five months of the current fiscal year.
Egyptian Monetary Policy Management
Banking expert Shaimaa Wagih also expects an interest-rate cut at the CBE’s final meeting of 2025, describing the decision as a strategic turning point in Egypt’s monetary policy management. She said the move would reflect a balanced approach that supports economic activity while safeguarding financial-market stability, noting improvements in inflation indicators and liquidity conditions.
Benefits of Rate Cut
Wagih cited lower borrowing costs, stronger investment, enhanced purchasing power, improved liquidity, and stronger aggregate demand as key benefits of a rate cut. Such a decision would positively affect the banking sector and capital markets by lowering financing costs, encouraging productive investment, and supporting banks’ ability to diversify loan portfolios and improve returns.
Conclusion
The upcoming decision by the Monetary Policy Committee of the Central Bank of Egypt is highly anticipated, with expectations leaning towards a cut in interest rates. Experts believe this move would support economic growth, reduce borrowing costs, and stimulate investment, while also considering the need to control inflation and maintain financial stability. The decision will be a crucial step in Egypt’s monetary policy management, reflecting a balanced approach to supporting economic activity while safeguarding financial-market stability.
