Central Bank of Egypt reduces rates less aggressively in May

Loosening cycle remains live, but pace slows down: At its meeting on 22 May, the Monetary Policy Committee of the Central Bank of Egypt (CBE) decided to cut the benchmark overnight deposit rate and the overnight lending rate by 100 basis points to 24.00% and 25.00%, respectively. The cut followed April’s 225 basis points reduction, which had been the first since the onset of the Covid-19 pandemic. A cut had been priced in by markets, although there was a wide spread regarding its size.

Cooling inflation drives cut: The CBE was motivated to reduce rates again by the continued deceleration in headline and core inflation in January–March 2025 and their stabilization in April. The moderation was driven by prior monetary policy tightening, favorable base effects and the fading impact of previous supply-side shocks. The CBE also perceived an improvement in inflation expectations. Regarding economic activity, the CBE projects that GDP growth will have accelerated to 5.0% year on year in January–March 2025, but that the economy remains below its potential size, suggesting muted demand-side pressures ahead and giving it room for a cut. That said, the Central Bank cut by less than at its last meeting because it expects inflation to decline less quickly ahead, as the government will be forced to cut fuel subsidies as part of IMF-backed economic reforms.

More cuts on the table: The Central Bank of Egypt did not provide explicit forward guidance. All of our panelists see additional cuts by December 2025, although there’s a wide 75–700 basis point spread. The Bank will reconvene on 10 July.

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