The committee also decided to cut the discount rate equally to 25.5 per cent.
According to the MPC press release, one of the reasons that prompted the rate cuts was “the sharp decline in annual headline inflation… availing ample room for commencing the easing cycle”. It cited that annual headline and core inflation decelerated to 13.6 per cent and 9.4 per cent in March 2025, respectively, with the latter recording its lowest rate in almost three years. The slowdown in annual headline inflation is the result of a sharp decline in annual food inflation from 45 per cent in March 2024 to 6.6 per cent in March 2025.
Just before the MPC meeting, some observers had either predicted that it would not cut rates at all, or that it would make a modest cut to provide some relief to the business community whose activities were affected by the high interest rates over the past two years. One of the reasons some believed rates would stay unchanged was the expected higher inflation in the coming months following the recent hike in fuel prices.
On 11 April the prices of gasoline, diesel, industrial diesel, gas allocated for brick factories, and butane gas went up by 10 to 30 per cent. The hikes are part of the government’s plan to cut subsidies on fuel. It is one of its commitments to the International Monetary Fund (IMF).
Another reason experts believed would keep the MPC from cutting rates was the global economic uncertainty in the wake of US President Donald Trump’s trade policies. Trump’s tariffs had caused jitters around the world causing investors to flee emerging markets including Egypt. Experts saw that a lower interest rate would give them more cause to stay away.
Economist Moataz Yeken believes a more gradual approach by the MPC may have been a safer course. “The size and timing of this move risk un-anchoring inflation expectations and could complicate Egypt’s external position if anticipated inflows falter.”
Because of the recent fuel price hikes, Yeken had said, inflationary pressures are building up, not receding. The hikes will feed through key sectors in the coming months, and inflation expectations remain sensitive, he added.
But the MPC is aware of the risks, saying in its press release that it expected inflation to continue declining throughout 2025 and 2026, though at a slower pace compared to the decline in the first quarter of 2025. “The slower disinflation path is attributed to the impact of recently implemented and planned fiscal consolidation measures in 2025, in addition to the downward stickiness of non-food inflation.”
It also said risks surrounding the inflation outlook persist, stemming from “possibly higher than expected pass-through of fiscal measures, as well as uncertainty regarding the impact of the current China-US trade war, and an escalation of regional geopolitical conflicts”.
Ramona Moubarak, head of MENA country risk at Fitch Solutions, said the CBE’s rate cut came in line with their expectations of a 200-300 basis points reduction.
“Despite the recent fuel price hike, we do not anticipate upside surprises in inflation, and the CBE may take advantage of the 90-day pause in US rate hikes — which should help to stabilise markets — to further lower real policy rates,” Moubarak wrote on LinkedIn.
She noted that the May and June MPC meetings will take place after the release of the April and May inflation data, which would give the CBE more clarity about the impact of fuel price increases on price growth. However, she also pointed out there is a commitment to raise electricity prices that the government will need to address in the coming months.
UK-based research house Capital Economics said in a note on Tuesday that “even after last week’s cut, real interest rates in Egypt are significantly positive and monetary conditions remain very tight”. They said they see “plenty of scope for the easing cycle to continue,” forecasting a reduction by another 800 basis points by the end of this year.
The MPC had hiked interest rates by 600 basis points in March 2024 when it devalued the pound ahead of the agreement with the IMF. At the time, the hike brought total rate hikes to 1,900 bps since it started its tightening policy in 2022.
According to Moubarak, “if global oil prices remain at current levels or decline further, the government may only need one additional fuel price hike to meet its subsidy reduction targets under the IMF programme by the end of 2025.” Because of the fears of the potential recessionary effect of the tariff war, oil prices hover around $60 per barrel. Benchmark Brent crude oil prices averaged $81 per barrel in 2024, according to the US Energy Information and Administration, a statistical and analytical agency in the US Department of Energy.
The MPC release said preliminary indicators for Q1 2025 suggest a sustained recovery in economic activity for the fourth consecutive quarter, with growth exceeding the 4.3 per cent registered in Q4 2024. It said real GDP growth in Q4 2024 was primarily driven by the positive contributions of non-petroleum manufacturing, trade and tourism. Nonetheless, it said estimates for the output gap indicate that actual economic activity remains below its full potential but is projected to reach full potential by the end of the current fiscal year 2025-26. Accordingly, “the current output gap estimates support the forecasted disinflation path over the short term, as demand-side inflationary pressures are expected to remain subdued given the prevailing tight monetary stance,” the release said. Nonetheless, the MPC said it will keep monitoring economic and financial developments, and will not hesitate to utilise all tools at its disposal to achieve its price stability mandate, steering inflation towards its target range of five to nine per cent on average, in Q4 2026.
* A version of this article appears in print in the 24 April, 2025 edition of Al-Ahram Weekly
Short link: