Egypt lowers interest rates by 225 basis points and predicts future reductions

Egypt’s central bank said that lower inflation has made room for more rate cuts in the future, and on Thursday it lowered overnight interest rates by 225 basis points, its first cut in nearly five years.

The bank reduced the deposit rate to 25 percent and the lending rate to 26 percent. Reuters polled 17 analysts on Monday, and the median prediction was that the Monetary Policy Committee of the central bank would lower interest rates by 200 basis points.

After reaching a record high of 38% in September 2023, annual headline inflation has been declining. From 24.0% in January to 12.8% in February and 13.6% in March, it has been declining since then.

In a statement released with the decision, the committee attributed recent decreases to “a sizable favorable base effect, cumulative monetary tightening, and the fading impact of previous shocks.”

In 2025 and 2026, it predicted that inflation would continue to decline, albeit more slowly, thanks to recent and planned budget reduction measures.

It further stated that the decreasing inflation provided “ample room for commencing the easing cycle” in interest rates.

The committee also noted that economic development seemed to be picking up speed.

“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,” said the report.

The rate reduction was the first since March 2024, when the central bank raised interest rates by 600 basis points and drastically devalued the currency in relation to the dollar as part of a financial support package worth $8 billion from the International Monetary Fund.