Despite Slowing Inflation CBE Holds Interest Rates Steady

In a widely anticipated decision, the Central Bank of Egypt (CBE) chose to leave key interest rates unchanged during its fourth policy meeting of the year on Thursday, citing the need for caution amid persistent inflationary risks and ongoing tax policy adjustments.

The CBE maintained the overnight deposit rate at 24% and the lending rate at 25%, marking a pause after two consecutive cuts earlier this year that signaled a shift toward a more flexible monetary stance.

The decision comes despite a notable easing in inflation. Egypt’s annual urban inflation rate slowed to 14.8% in June, down from 16.9% in May, according to data released Wednesday by the Central Agency for Public Mobilization and Statistics (CAPMAS). The moderation was driven largely by a decline in food and energy price pressures.

Still, the central bank emphasized in its post-meeting statement that it prefers to "remain cautious in adjusting rates further" until the full impact of recent economic changes — particularly amendments to the Value Added Tax (VAT) law — is assessed.

“While inflation is on a declining path, underlying risks and tax-related adjustments necessitate a measured approach,” a senior CBE official told Masrawy. “Stability is essential at this stage to anchor expectations and support medium-term growth.”

In April and May, the central bank had slashed rates by a cumulative 325 basis points, its first rate cuts in over four years. Those moves were seen as part of a broader pivot to stimulate private sector activity and revitalize economic growth amid currency volatility and external debt challenges.

The pause suggests policymakers are now balancing between supporting recovery and guarding against premature easing that could reignite price pressures or undermine investor confidence.

Analysts say the CBE’s current strategy reflects a broader goal of anchoring macroeconomic stability while preparing for further monetary easing later in 2025, provided inflation continues to decline and fiscal reforms stay on track.

Meanwhile, Egypt’s foreign currency reserves rose by $174 million in June, reaching their highest level since early 2021 — a signal of growing confidence in the country’s external position.

The next interest rate decision is expected in September, and market observers will closely monitor inflation data, tax implementation outcomes, and global monetary trends to gauge the CBE’s next move.