Egypt cuts interest rates for first time in 5 years

Egypt’s central bank lowered overnight interest rates by 225 basis points (bps) on Thursday, its first cut in more than five years, saying lower inflation had opened the way to yet further rate cuts in the future.

The bank lowered the lending rate to 26 percent and the deposit rate to 25 percent. The median forecast in a Reuters poll of 17 analysts on Monday was for the central bank’s monetary policy committee to cut rates by 200 bps.

Annual headline inflation has been trending downwards since September 2023, when it hit record high of 38 percent, falling to 12.8 percent in February and 13.6 percent in March from 24 percent in January.

Recent declines were “due to a sizable favourable base effect, cumulative monetary tightening, and the fading impact of previous shocks,” the committee said in a statement accompanying the decision.

It expected inflation to continue falling in 2025 and 2026, though at a slower rate, helped by recent and planned fiscal consolidation measures.

The declining inflation availed for “ample room for commencing the easing cycle” in interest rates, it added.

Economic growth also appeared to be accelerating, the committee said.

“Preliminary indicators for Q1 2025 suggest a sustained recovery in economic activity for the fourth consecutive quarter, with growth exceeding the 4.3 percent registered in Q4 2024,” it said.

The interest rate cut was the first change in rates since March 2024, when the central bank hiked rates by 600 bps and sharply reduced the currency’s value against the dollar, measures taken as part of an $8 billion International Monetary Fund financial support package.

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