Egypt cuts interest rates as economy grows

Egypt’s central bank said on Thursday that it was cutting overnight interest rates, as it expects economic recovery and lower inflation.

The monetary policy committee (MPC) lowered the overnight deposit and lending rates by 100 basis points to 24 percent and 25 percent, respectively, its second rate cut this year, the bank said in a statement.

In April, the central bank lowered overnight rates by 225 basis points, its first cut in over five years.

The bank said it saw a “moderating trend in headline and core inflation, coupled with easing underlying dynamics, suggests an improvement in inflation expectations”.

Economic activity recovered in the first quarter of 2025, with real GDP growth projected at 5 percent compared to 4.3 percent in the fourth quarter of 2024, the MPC said in a statement.

“The economy is expected to reach its potential by the end of 2025/26,” the bank said.

In April, the International Monetary Fund (IMF) projected Egypt’s economy to grow by 3.8 percent in 2025. However, the World Bank increased its growth forecast to 4.2 percent for 2025-2026 from 3.5 percent in 2024-2025. The financial year begins in July.

Annual inflation decelerated significantly in the first quarter of 2025 due to muted inflationary pressures, monetary tightening and the fading impact of previous shocks.

By April 2025, annual headline and core inflation stabilised at 13.9 percent and 10.4 percent, respectively, primarily driven by declining food prices.

Inflation has been declining since the start of the year and is expected to reach the central bank’s target of 7 percent in the fourth quarter of 2026.

“The MPC judges that cutting policy rates strikes a balance between vigilance against prevailing risks and the ample room available to advance the monetary easing cycle,” the statement said, supporting the projected disinflation in the coming years.

• Egypt unveils $91bn budget amid IMF reform pressure
• Qatar to invest over $7bn in Egypt’s economy
• Remittances to Egypt rise as reforms instill confidence

Fitch, the ratings agency, expects inflation to ease to 12.5 percent by mid-2025, down from the 26 percent recorded in September 2024.

The central bank has raised rates by 600 basis points since March 2024 and allowed the Egyptian pound to fall against the US dollar as part of a loan agreement with the IMF.

The IMF approved the fourth review in March, allowing the disbursement of $1.2 billion in a 46-month loan programme approved in 2022 and later expanded to $8 billion.

This week the European Union received clearance to disburse €4 billion ($4.2 billion) in financial aid to Egypt to support growth.