Egypt’s monetary policy has undergone a significant shift over the past year, moving from an aggressive tightening cycle in 2024 to a gradual easing phase extending into early 2026.
Throughout 2024, the Central Bank of Egypt (CBE) raised interest rates several times to curb inflation, with deposit rates peaking at 27 per cent at the beginning of 2025. Since then, the trend has reversed with the CBE steadily lowering rates to support economic activity.
In its most recent meeting last week, the CBE’s Monetary Policy Committee (MPC) cut interest rates by one percentage point with the benchmark deposit rate falling to 19 per cent.
The overnight deposit rate and overnight lending rate were reduced to 19 per cent and 20 per cent, respectively. The MPC attributed its decision to moderating economic growth and a clear downward trend in inflation, signalling growing confidence that price pressures are becoming more contained.
Recent data support this assessment. Egypt’s economic growth slowed slightly at the end of last year, with GDP expanding by 4.9 per cent year-on-year in the fourth quarter of 2025, down from 5.3 per cent in the third quarter.
While still robust by regional standards, this moderation suggests that the economy is operating below full capacity, helping to reduce inflation.
Annual headline inflation declined to 11.9 per cent in January 2026, down from 12.3 per cent in December last year. Core inflation, which excludes volatile food and energy prices, also eased to 11.2 per cent from 11.8 per cent over the same period.
According to a CBE statement, the deceleration was largely driven by food inflation reaching its lowest levels in four years, alongside a continued, albeit slower decline in non-food inflation.
The improvement came despite seasonal price increases being common ahead of Ramadan. The seasonal surge was offset by mild declines in non-food components in the basket of goods and services used to calculate inflation, particularly in services, reinforcing the view that inflation expectations are gradually stabilising.
“The cut, the sixth since April 2025, bringing total reductions to 7.25 per cent, aims to boost credit to the private sector and enhance short-term growth,” banking expert Hani Abul-Fotouh told Al-Ahram Weekly.
The easing cycle reflects a shift towards stimulating investment and consumption after a prolonged period of tight liquidity conditions, he added.
Several supportive macroeconomic factors have given the MPC room for manoeuvre. According to Heba Mounir, a financial analyst at HC for Investment, Egypt’s improved external position, the recent appreciation of the Egyptian pound, elevated real interest rates, easing input costs, the relatively calmer geopolitical conditions, and expectations of further inflation declines all create a window for additional rate cuts.
Official CBE data show Egypt’s foreign reserves standing at $52.59 billion and net foreign assets at $25.4 billion, levels that strengthen external buffers and enhance confidence in the country’s monetary stability.
However, challenges remain. Egypt’s trade deficit is hovering at around $32 billion, putting pressure on the exchange rate and underscoring the need for structural reforms to complement monetary easing.
Experts say that interest rate reductions alone cannot address underlying imbalances without parallel efforts to enhance productivity, diversify exports, and attract foreign investment.
A decisive easing of the monetary stance would also reduce the burden of interest payments on public debt, according to Abul-Fotouh.
Lower rates ease debt-servicing costs by hundreds of millions of pounds, creating the liquidity needed for other priorities. But “while the rate cut eases public debt-servicing, it also makes bank deposits less attractive, potentially triggering a shift towards gold or real estate and creating asset bubbles or renewed inflationary pressures,” he added.
The move also limits returns on household savings, posing a challenge in balancing growth objectives with the welfare of millions of people depending on returns on deposits as a main source of income.
Abul-Fotouh stressed that recovery should not be confined to macroeconomic indicators alone. Although real interest rates, adjusted for inflation, remain positive at around seven to eight per cent, the benefits for households are limited due to elevated living costs.
“The economy may grow on paper, but without safeguarding household purchasing power, the broader population will continue to feel squeezed,” Abul-Fotouh said. He urged the banks to diversify financial products, including inflation-linked investment funds, to protect savers.
At the same meeting, the CBE reduced the required reserve ratio from 18 per cent to 16 per cent, releasing liquidity back into the banking system. Abul-Fotouh explained that this decision frees approximately LE88.3 billion in previously frozen bank reserves, granting the banks greater flexibility in loan pricing and thus offsetting declining profitability resulting from lower overnight lending rates.
Flexible exchange-rate management and the Egyptian pound’s appreciation to around LE46.8 to the dollar have further reinforced stability, while the reserve ratio cut provides added stimulus to credit expansion.
Looking ahead, the CBE targets inflation at seven per cent (±2 per cent) by late 2026 while aiming to realise GDP growth of around five per cent. It expects real GDP growth to average 5.1 per cent in the 2025-2026 fiscal year, which ends in June, up from 4.4 per cent in 2024-2025.
If core inflation remains below 10 per cent, analysts anticipate further cumulative easing of seven to eight per cent by year-end.
* A version of this article appears in print in the 19 February, 2026 edition of Al-Ahram Weekly
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