As Egypt’s Monetary Policy Committee (MPC) convenes today, the financial community is closely monitoring the Central Bank of Egypt (CBE). After a prolonged period of monetary tightening, recent signs of easing inflation have fueled speculation regarding a potential shift in policy. Market analysts anticipate that the CBE may consider an interest rate reduction, which could mark a pivotal moment in Egypt’s economic trajectory.

At its last meeting on February 20, the CBE opted to keep rates unchanged, maintaining the overnight deposit rate at 27.25%, the overnight lending rate at 28.25%, and the main operation rate at 27.75%. This decision was made in an effort to curb inflationary pressures and restore investor confidence in the Egyptian pound, which had faced significant depreciation.

Inflation on the decline: Is the CBE ready to cut?

The latest data from the Central Agency for Public Mobilization and Statistics (CAPMAS) paints an encouraging picture. Inflation, which had soared to 23.2% in January, dropped sharply to 12.5% in February, followed by a slight rise to 13.1% in March. The swift deceleration of inflation has prompted market observers to question whether the CBE will finally ease rates.

Opinions on Egypt’s interest rate outlook remain divided. Ahmed Moaty, Chief Economist and Executive Director of VI Markets Egypt, anticipates a rate cut in the upcoming MPC meeting. “I forecast a 2% decrease in interest rates,” he told Business Monthly. “Initially, I expected a 3% cut, but the recent US tariffs have added pressure and increased uncertainty, which may lead to a more cautious approach on rate cuts.”

Aya Zoheir, Research Section Head at Zilla Capital, shared her revised outlook for Egypt’s interest rates with Business Monthly. “We now forecast the CBE to cut rates by 1% to 2%, down from our earlier prediction of 3% to 4%,” she said.

Zoheir explained that the expectation for rate cuts stems from the recent decline in inflation compared to the previous year. However, the recent rise in fuel prices has prompted her team to adjust their forecast, anticipating its impact on April’s inflation figures.

“We expect inflation to remain in a controlled range of 14% to 18% throughout 2025, with the maximum reaching 18%. This will not pose a significant threat to interest rates,” Zoheir added.

She also noted that, despite inflation concerns, the CBE is likely to maintain a cautious approach. As a result, she expects a conservative initial rate cut in 2025, with a total reduction of 4% to 6% by year-end.

In fact, Morgan Stanley has forecast a gradual easing, predicting a drop to 17.25% by December 2025. In contrast, Goldman Sachs expects a more cautious approach, projecting a 600 basis point cut, which could bring policy rates down to between 20% and 21% by year-end.

A stable currency and rising remittances provide additional leverage

Moaty suggested the CBE may cut interest rates, citing the stable EGP/USD exchange rate and broader macroeconomic stabilization. “The dollar’s stability, especially since the EGP/USD rate has remained steady around 51, could help us manage current challenges,” he noted.

The shift to a flexible exchange rate regime has bolstered confidence in the Egyptian pound, and the uptick in remittances has further supported this stability. According to the CBE’s latest release, remittances from Egyptians abroad surged to $20 billion during the first seven months of FY 2024/2025 (July–January), nearly doubling from $11 billion in the same period last year. This increase in remittance inflows provides much-needed external support and strengthens the central bank’s hand as it navigates economic challenges.

Moaty highlighted the central bank’s current policy advantage, noting, “The gap between interest rates and inflation is around 14%,” which he believes provides room for rate cuts. “This would boost the business environment, improve the investment climate, and reduce the budget’s debt.” However, he also cautioned that external factors, such as rising fuel prices, could put upward pressure on rates, though not significantly.

Global economic uncertainty and its impact on CBE’s decision

Globally, central banks are treading carefully. The U.S. Federal Reserve, for example, recently opted to keep interest rates unchanged, maintaining a cautious stance. Federal Reserve Chairman Jerome Powell emphasized, “Our obligation is to keep longer-term inflation expectations well anchored to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” during a speech at the Economic Club of Chicago on April 16, according to USA Today. “For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance,” he added.

This global context is key to the CBE’s decision-making, as Egypt, like other emerging markets, grapples with both domestic and external challenges, from commodity price fluctuations to geopolitical risks. Zoheir explained, “The lowered interest rate cut forecasts are partly due to uncertainty raised by the Fed, and to mitigate the expected inflation spike from the ongoing trade war.”