CBE: Egypt Nears “Inflation Safety Zone” as Monetary Pressures Ease

Egypt’s economy is showing clear signs of stabilizing inflation while regaining growth momentum, according to the latest quarterly report from the Central Bank of Egypt. 

The fourth-quarter 2025 assessment indicates a gradual easing of inflationary pressures, supported by stronger foreign currency inflows and a pick-up in private investment.

The central bank expects inflation to remain near current levels in the first quarter of 2026 before resuming a gradual downward trajectory for the rest of the year. Core inflation has seen only a slight temporary rise, but the overall trend points toward convergence on the 7% target (±2%) by the end of 2026.

Annual average inflation is projected to range between 12% and 12.5% for the fiscal year 2025/26, falling further to around 9% in 2026/27, compared with 20.4% in 2024/25.

In a series of policy actions, the central bank cut key interest rates by 100 basis points on February 12, 2026, lowering the overnight deposit rate to 19%, the lending rate to 20%, and the main operation rate to 19.5%. Additionally, the reserve requirement for commercial banks was reduced from 18% to 16%, boosting liquidity and supporting credit flow to the private sector.

The CBE emphasized that these measures are designed to ensure the smooth transmission of monetary policy into the real economy, stabilize inflation expectations, and sustain growth while maintaining price stability.

Egypt’s GDP is expected to grow 5.1% in 2025/26, up from an earlier estimate of 5%, and 5.5% in 2026/2027, driven by strong performance in non-oil manufacturing, services, tourism, and communications. Large-scale tourism projects and increased occupancy rates have bolstered the services sector, while extractive industries are gradually recovering, further supporting growth expectations.

Foreign currency inflows have strengthened significantly, reflecting robust remittances, rising revenues from tourism and transportation, and renewed interest from foreign investors in local debt instruments. This external stability has helped reduce borrowing costs and reinforce confidence in the domestic economy, contributing to a lower risk premium and more predictable inflation trends.

Labor market indicators show moderate improvement, with unemployment falling to 6.2% in Q4 2025 from 6.7% a year earlier. Real wages are recovering, though not yet reaching pre-2022 levels. This gradual improvement supports household consumption without fueling new inflationary pressures, aligning with the central bank’s steady downward trajectory for prices.

While the overall outlook is positive, risks remain. Potential fiscal adjustments, energy price changes, non-food inflation, and geopolitical uncertainties could slow the pace of inflation reduction. 

Under a more cautious scenario assuming higher sovereign risk premiums, inflation could reach around 12.5% in 2025/26, slightly above the baseline estimate of 12%, before converging toward the target by year-end 2026.