In its Monetary Policy Report, the CBE noted that this rebound signals a gradual turnaround primarily driven by the revitalized manufacturing sector.
As per the report, leading indicators point to a notable uptick in industrial output, spurred by improvements in foreign exchange market conditions.
Unifying exchange rates has enhanced firms' access to essential raw materials and intermediate goods, revitalizing production lines.
On 6 March 2024, the CBE applied corrective measures, including using a fourth wave of fair local currency pricing and hiking the key interest rates by six percent in one go.
Yet, CBE started an easy cycle for monetary policy, slashing the key interest rates by 2.25 percent (225 bps) in the April meeting.
The CBE’s Monetary Policy Committee is scheduled to convene on Thursday to review the key interest rates in light of recent developments on the global and local levels.
In parallel, the extractives sector is expected to contribute more robustly to overall growth, with several recent onshore and offshore oil and gas discoveries set to boost national output, according to the report.
These developments are expected to underpin broader economic momentum.
The report also forecasted this recovery to continue in the upcoming FY2025/2026, which rolls out on 1 July, with GDP growth expected to reach an average of 4.8 percent.
While still below potential, the economy is projected to steadily close the output gap, laying the groundwork for a return to full capacity in the medium term.
This trajectory supports the current outlook for declining inflation. With domestic demand pressures expected to remain contained under a tight monetary policy, the disinflation trend is likely to persist across the forecast horizon.
Meanwhile, the report expected broad money (M2) growth to slow to 23.2 percent by the end of June 2025, down from 28.7 percent recorded at the close of FY2023/2024.
A further modest slowdown is anticipated by the end of June 2026, with M2 growth stabilizing at around 22.8 percent. M2 is a measure of the money supply, referring to a certain portion of the money contained in an economy.
This marked deceleration in FY2024/2025 is largely attributed to the unification of the exchange rate in March 2024 and the exceptional rebound in the banking system’s net foreign assets (NFAs) during FY2023/2024, an event not expected to repeat in the current period, according to the report.
The report projected the inflation rate to average around 14-15 percent and 10-12.5 percent in 2025 and 2026, respectively, compared to 28.3 percent in 2024.
“As such, annual headline inflation is expected to continue declining throughout the remainder of 2025 and 2026, albeit at a slower pace compared to the significant decline witnessed in Q1 2025,” the report expected.
It attributed this to the drag from implemented and planned fiscal consolidation measures across the forecast horizon and the relative persistence of non-food inflation.
Accordingly, inflation is expected to converge toward the CBE target of seven percent (± two percentage points) on average in Q4 of 2026.
Expectations on the upcoming Thursday meeting of the Monetary Policy Committee diverge on whether the current interest rates will be maintained or cut.
From December 2022 to September 2026, Egypt has engaged in a $8 billion loan programme with the International Monetary Fund (IMF) under its Extended Fund Facility (EFF).
Currently, an IMF mission is visiting Egypt to discuss completing the EFF's fifth review.
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