CBE Reveals Reasons for Interest Rates Cut

Egypt’s Central Bank (CBE) cut its key interest rates by 100 basis points, citing a sustained slowdown in inflation and a cautiously improving economic outlook, even as global uncertainties continue to cloud the horizon.

At its latest meeting, the Monetary Policy Committee (MPC) decided to lower the overnight deposit rate to 20.00%, the overnight lending rate to 21.00%, and the main operation rate to 20.50%. The discount rate was also reduced by 100 basis points to 20.50%, marking a decisive step in the bank’s gradual monetary easing cycle.

According to the Central Bank of Egypt (CBE), the move reflects a comprehensive assessment of inflation developments and expectations since the committee’s previous meeting.

Globally, economic growth has shown signs of a modest recovery, though prospects remain fragile amid persistent uncertainty surrounding trade policies, ongoing geopolitical tensions, and a slowdown in global demand.

Inflation dynamics worldwide have largely stabilized, prompting central banks in both advanced and emerging economies to adopt a cautious and gradual approach toward monetary easing.

Commodity markets, however, present a mixed picture. Oil prices have declined as global supply outpaces demand, while agricultural commodity prices have followed divergent trends. Despite this, risks remain elevated, particularly due to potential supply-chain disruptions and the possibility of escalating geopolitical conflicts.

On the domestic front, the CBE estimates that real GDP growth reached around 5.0% in the fourth quarter of 2025, slightly lower than the 5.3% recorded in the previous quarter. Growth in the third quarter was driven primarily by positive contributions from non-oil manufacturing, trade, and telecommunications.

Despite the marginal slowdown, the central bank noted that the current growth trajectory continues to support a decline in inflation over the short term. Demand-side inflationary pressures, it said, remain contained under the prevailing monetary policy stance.

Inflation trends were a key factor behind the rate cut. Headline annual inflation resumed its downward trajectory, falling to 12.3% in November 2025, despite a recent increase in fuel prices. The decline was largely attributed to a sharp slowdown in food inflation, which dropped to just 0.7%, its lowest level in more than four years.

Core inflation stood at 12.5%, reflecting higher prices of non-food items, particularly services. On a monthly basis, headline and core inflation registered 0.3% and 0.8%, respectively, in November.

The CBE expects headline inflation to rise temporarily toward the end of the fourth quarter of 2025 due to base effects from energy price increases, before resuming its decline in the second half of 2026, gradually converging toward the bank’s target.

Despite the improving inflation outlook, the central bank cautioned that risks remain tilted to the upside. These include the potential escalation of geopolitical tensions, persistent inflation in the services sector, and fiscal consolidation measures that could exceed initial expectations.

Such risks, the MPC said, necessitate close monitoring of inflation developments and a prudent approach to further monetary easing.

In light of these factors, the committee emphasized that future decisions will be made on a meeting-by-meeting basis, guided by evolving data, forecasts, and surrounding risks. The CBE reaffirmed its commitment to using all available tools to maintain price stability and steer inflation toward its medium-term target of 7% (±2 percentage points) by the fourth quarter of 2026.

For now, the rate cut signals confidence that inflation is firmly on a downward path, while underscoring that caution, not complacency, will define Egypt’s monetary policy in the months ahead.