As Egypt’s economy navigates persistent economic challenges, all eyes are on the upcoming Monetary Policy Committee (MPC) meeting scheduled for February 20, 2025. With inflationary pressures remaining high and the Egyptian pound experiencing fluctuations, the Central Bank of Egypt (CBE) is at a critical juncture. Analysts and business leaders alike are speculating on whether the CBE will shift its stance and ease interest rates after a series of aggressive hikes in the past year.
A year of aggressive rate hikes
In its effort to combat soaring inflation, the CBE implemented a series of interest rate hikes throughout 2024. The trend began with a 200-basis-point increase that raised rates to 21.25%, 22.25%, and 21.75%. This was followed by an unprecedented move during a special MPC meeting on March 6, 2024, where rates were hiked by an additional 600 basis points, bringing them to 27.25%, 28.25%, and 27.75%. These aggressive measures were aimed at stabilizing the economy and curbing inflation, which had reached multi-year highs.
However, as 2024 drew to a close, the CBE adopted a more cautious approach. The final MPC meeting of the year, held on December 26, saw policymakers opting to maintain interest rates at their elevated levels, signaling a potential shift in strategy. This decision has fueled speculation that the central bank may now consider easing rates to support economic growth and ease borrowing costs for businesses and consumers.
Experts weigh in
To offer expert insight, we turn to Randa Hamed, Managing Director of OKAZ Portfolio Management. Hamed explained that while inflation indicators have shown a downward trend, she does not expect the CBE to reduce interest rates in the upcoming meeting. She stated, “Inflation indicators have been on a downward trajectory in recent months, so it was expected that the CBE might start decreasing interest rates. However, I project that they will not reduce rates in this meeting for two reasons: the rising inflation in the US due to Trump’s customs tariff decisions, and the fact that Ramadan next month could lead to higher prices.”
Hamed also pointed out that the government is considering an increase in salaries and wages to EGP 7,500, up from the current EGP 7,000. “All of these factors could lead to a reversal in the downward trend of inflation,” she added. However, she suggests that a rate cut could be on the horizon. “I believe the CBE may start reducing interest rates in the first half of 2025, possibly during the April meeting,” she said.
Hamed emphasized that the CBE must eventually lower interest rates to help rejuvenate the economy. “As long as interest rates remain high, we are harming companies and the stock market,” she explained. She pointed to Europe’s stock market performance, which has seen improvements as a result of rate cuts. “Europe, which has the highest-performing stock markets, has already started decreasing interest rates since June 2024,” she added.
However, she noted that the current situation in Egypt is troubling for businesses. “Right now, companies are unable to expand due to the high cost of lending,” she said. “We are killing the economy.”
Another crucial concern Hamed raised is the potential impact of rate cuts on inflation. While lowering interest rates could stimulate economic activity, it might also increase the money supply and drive up inflation. “Companies are currently investing large sums in T-bills to take advantage of the higher rates, yielding returns of 21% or 22%. If money starts circulating more rapidly in the market, it could increase the money supply and fuel inflation, which is the CBE’s biggest fear,” Hamed warned.
Moreover, she pointed out that companies are opting to liquidate stocks and invest in T-bills, which offer high returns. “A lot of my clients have liquidated their stocks and bought T-bills. The stock market is not operating well right now because companies are suffering due to the high interest rates,” she said.
Meanwhile, Mohamed Fouad, Economic expert and Senior Vice President MEA Operations at COPC Inc., told Business Monthly that he projects there will be 600 to 700 basis points in policy cuts throughout 2025. As for the next MPC meeting, he expects cuts ranging between 150 to 250 basis points, driven in part by a decrease in the rates of Certificates of Deposits (CDs) at commercial banks and the auction outcome of T-bills.
“In light of current geopolitical developments, lackluster inflation trends (small annual downtick and a month-on-month 1.5% increase), and the fact that unwinding of the base effect will already push year-over-year inflation down, I would wait and hold interest rates steady at the current rate and review again next month to allow dust to settle,” Fouad stated.
Market expectations
Looking ahead, major financial institutions have released projections for Egypt’s interest rate trajectory. BMI, a Fitch Solutions company, forecasts the CBE’s policy rate to decline to 19.25% in 2025 and further drop to 11.25% in 2026. The firm also projects inflation to ease from 28.3% year-over-year in 2024 to 16.8% in 2025. Meanwhile, Goldman Sachs, in its Egypt trip notes report published on January 16, 2025, anticipates significant policy rate cuts over the next twelve months, expecting rates to reach 13% by year-end. Similarly, Morgan Stanley’s report from November 14, 2024, predicts that interest rates will decline to 17.25% by December 2025.
Balancing inflation
Inflation remains a critical challenge for Egypt’s economy. According to the latest data from the Central Agency for Public Mobilization and Statistics (CAPMAS), headline inflation was 23.2% in January 2025, a slight decrease from 23.4% in December 2024. However, inflation peaked at 36% in February 2024, prompting the CBE to implement a more flexible exchange rate system. This decision led to a sharp devaluation of the Egyptian pound, which dropped to around EGP 50 per US dollar.
During its December 2024 meeting, the CBE extended its inflation targets to the fourth quarters of 2026 and 2028, with aims of reaching 7% (± 2 percentage points) and 5% (± 2 percentage points) on average, respectively. This long-term strategy highlights the CBE’s commitment to achieving price stability while addressing the broader economic challenges ahead.
According to the European Bank for Reconstruction and Development (EBRD) Transition Report for 2024-2025, Egypt’s economy experienced a slowdown in real gross domestic product (GDP) growth, falling to 2.4% in FY2023/2024, down from 3.8% the previous year. This decline was primarily attributed to a shortage of foreign exchange and weakening investor confidence. However, the situation has been partially offset by significant developments, such as the $35 billion Ras Al Hekma deal and the expansion of the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) loan program, which increased from $3 billion to $8 billion.
