Central Bank of Egypt to persistently lift crucial interest rate in response to mounting inflation, as reported by JPMorgan.
The devaluation of the Egyptian pound and aggressive monetary policy changes, including significant cuts in key interest rates, have had a mix of impacts and potential benefits on Egypt's economy and inflation rate.
Boosting the Economy
The Central Bank of Egypt (CBE) initiated a monetary easing cycle in April-May 2025, reducing policy rates by 3.25%. This move has translated into lower lending and deposit rates in the banking sector, with deposit rates falling to 18.8% from 21%, and loan rates decreasing to 25.4% from 26.6%. This easing helps reduce financing costs for businesses and consumers, potentially stimulating investment and consumption.
The yield curve has begun normalizing, signaling more confidence in the economy's interest rate outlook and potentially improving credit conditions.
The exchange rate devaluation under a flexible exchange rate regime since March 2024 has helped close the gap between official and parallel market rates, improving foreign exchange market stability and attracting foreign investment.
Egypt's economy shows resilience amid global turbulence, thanks to increased foreign exchange inflows, major Gulf investment pledges, surging remittances, and export recovery. This inflow supports the local currency and narrows the current account deficit, fostering economic stability and growth prospects.
GDP growth rebounded to about 3.5% in early 2025 after a slower 2.4% in 2023/24, signaling a moderate economic recovery amid reforms and policy changes.
Taming Inflation
Inflation, which reached an all-time peak of 38% in September 2023, has steadily declined to about 13.9% by mid-2025. This demonstrates the positive effect of tighter fiscal policies and monetary discipline, alongside the flexible exchange rate helping absorb shocks and stabilize prices.
Further monetary easing and interest rate cuts are expected to continue, with forecasts indicating the key policy rate dropping to 21% by the end of 2025 and continuing lower in 2026, which may help maintain inflation control while fostering economic growth.
Addressing Challenges
Despite these positive signs, structural reforms remain incomplete, the state still plays a large role in the economy, and private sector development and broader economic overhaul are essential for sustainable growth.
External risks, such as geopolitical tensions and global commodity price volatility, could threaten stability and risk another inflation spike or parallel market pressures if not carefully managed.
In summary, the devaluation and aggressive monetary easing have supported improved exchange rate stability, lowered interest rates, revived growth, and contributed to a significant fall in inflation, with increased foreign investment and remittances bolstering the economy. However, long-term benefits depend on continued structural reforms and government commitment beyond monetary policy to ensure sustained macroeconomic stability and growth.
[1] Central Bank of Egypt, Monetary Policy Committee, Meeting Minutes, April-May 2025. [2] International Monetary Fund, Egypt: Selected Issues, June 2025. [3] World Bank, Egypt Economic Update, June 2025. [4] Egyptian Ministry of Finance, Press Release, June 2025. [5] Egyptian Central Bank, Monthly Economic Bulletin, June 2025.
Finance and business sectors may experience lower costs due to the reduction in lending and deposit rates as a result of the Central Bank of Egypt's monetary easing (April-May 2025).
The anticipated continuation of further monetary easing and interest rate cuts could help maintain inflation control while fostering economic growth, thereby potentially providing benefits to various finance- and business-related activities.
