Egypt’s Central Bank Holds Interest Rates Steady Amid Global Uncertainties in 2025

Egypt's Central Bank Maintains Steady Interest Rates: A Cautious Approach Amidst Economic Recovery and Inflation Risks

In a pivotal move, Egypt’s Central Bank (CBE) decided to keep interest rates unchanged during its first meeting of 2025. This decision marks the seventh consecutive instance where the overnight deposit rate remained at 27.25 percent, the overnight lending rate at 28.25 percent, and both the main operation and discount rates steady at 27.75 percent.

Balancing Act: Economic Recovery vs. Inflation and Global Risks

The Monetary Policy Committee (MPC) of the CBE articulated that this decision underscores a cautious approach. It reflects an effort to balance between fostering domestic economic recovery and mitigating persistent inflation risks amidst global uncertainties. While some central banks globally have started reducing rates, others remain hesitant due to volatile commodity prices, geopolitical tensions, and potential repercussions from U.S. protectionist trade policies.

Positive Economic Indicators Amid Challenges

The MPC highlighted positive developments in Egypt’s economy, with preliminary data for Q4 2024 indicating accelerated economic growth driven by robust performances in manufacturing and transportation sectors. Additionally, the unemployment rate saw improvement, declining to 6.4 percent from 6.7 percent in the previous quarter.

However, challenges persist as real gross domestic product (GDP) lags behind its potential, which supports a disinflationary trend in the short term. January 2025 saw annual headline inflation stabilize at 24 percent with core inflation at 22.6 percent. Although food inflation eased to 20.8 percent, non-food inflation remained high, averaging 25.5 percent throughout 2024.

Inflation Risks and Future Outlook

The MPC noted that upside risks to inflation have increased due to global commodity price volatility and regional geopolitical tensions. Despite these challenges, the CBE anticipates a significant decline in inflation during Q1 2025, supported by monetary tightening and favorable base effects.

However, fiscal tightening measures could potentially slow the pace of disinflation later in the year. The CBE emphasized that current rates are appropriate to maintain a tight monetary stance while anchoring inflation expectations. The timing for any future rate cuts will be contingent on inflation trends and risk assessments.

Commitment to Price Stability

In its commitment to achieving price stability, the MPC has signaled its readiness to employ all necessary tools at its disposal. This strategic approach aims to guide inflation toward the target while supporting sustained economic growth.

As Egypt navigates these complex dynamics, the CBE's decisions will be pivotal in steering the country towards a stable economic future.