Central Bank of Egypt resumes loosening cycle aggressively in August

CBE cuts rates by more than markets projected: At its meeting on 28 August, the Monetary Policy Committee of the Central Bank of Egypt (CBE) resumed its loosening cycle, slashing its overnight deposit, overnight lending and main operation rates by 200 basis points to 22.00%, 23.00% and 22.50%, respectively. The reduction brought total cuts to 525 basis points since April, when the current loosening cycle began. Markets had anticipated a cut, although its size surprised them as a smaller reduction had been penciled in.

Improved inflation and inflation expectations drive reduction: The decision was primarily influenced by inflation: Headline inflation decelerated through July and core inflation was broadly stable, while headline and core consumer prices fell month on month in July. The CBE noted the monthly decline in price pressures suggests that the monetary policy stance has been sufficiently tight and, as a result, inflation expectations have improved. The Bank projects inflation to return to its target by October–December 2026, roughly in line with our Consensus. Despite the sizeable cut, the CBE assessed that the current level of the rates will continue to support the downward trend in inflation and anchor inflation expectations.

Additional reductions likely in store by end-December: The Central Bank did not provide explicit forward guidance on future movements. That said, virtually all of our panelists see room for additional cuts through December, though projections range widely from 100–600 basis points. The Bank will reconvene on 2 October.

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