The Central Bank of Egypt is out with its latest Monetary Policy Report (MPR)(pdf), which delves into Egypt’s economic trajectory and its position amid global economic developments, as well as offers insights and predictions regarding the country’s economic outlook. Here are the key takeaways from the 2Q 2025 report.

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Before we dive in- The CBE kept interest rates unchanged in its fourth meeting of the year in July, halting its easing cycle, after it cut rates by 225 bps in April and 100 bps in May. This move provided context for the bank’s predictions in the report, tying its decision to some of the key indicators of Egypt’s economy over the past quarter. The report also comes nearly three weeks ahead of the Monetary Policy Committee’s next meeting.

A closer look into 2Q 2025 trends: Annual headline inflation reached an average of 15.2% in the 2Q 2025, which is the lowest quarterly reading since the 3Q 2022. The CBE attributed the dip in inflation to improved exchange rate dynamics and sovereign risk levels beginning to normalize towards the end of the quarter.

ICYMI- Annual headline urban inflation (fell to 14.9% in June, from 16.8% in May, ending an upward trend that extended over three consecutive months.

Inflation outlook: The CBE sees inflation staying near its current level for the rest of this year, before steadily falling next year towards the CBE’s target of 7% (± 2 percentage points) on average in 4Q 2026. The bank slightly revised the baseline and alternative annual headline inflation forecasts from its 1Q 2025 report, now seeing inflation averaging 15-16% in 2025, revised from 14-15%, and 11-12% in 2026, revised from 10-12.5%. The figures are well below the 28.3% inflation average of 2024.

Several factors could impact the inflation outlook: The CBE noted that the inflation outlook remains subject to risks that include “price stickiness of services and retail items,” as well as domestic and global risks that include “uncertainty surrounding trade policies and possible re-escalation of geopolitical tensions.” The CBE noted that normalizing trade policies and easing geopolitical tensions could improve our inflation dynamics.

Our economy has fared well so far this year, with signs of “sustained recovery” in 2Q. The CBE now forecasts the GDP to have grown at 4.8% — the same rate recorded in the previous quarter, boosted by both non-petroleum manufacturing and tourism.

GDP growth is on track to gain momentum, reaching an average of 4.8% this fiscal year and 5.1% in FY 2026-2027, the CBE noted. This is driven by robust performances in key sectors, including extractions, manufacturing, and services.

Zooming in on the Suez Canal: The GDP growth is also expected to be bolstered by a partial recovery in Suez Canal activity, the CBE noted. This rebound depends on the gradual de-escalation of geopolitical tensions in the Red Sea, which would allow maritime transport to return to normal. Suez Canal receipts fell 54.1% y-o-y to USD 2.6 bn during the first nine months of the last fiscal year, with net tonnage down 61.9% and vessel transits falling 44.8%.

CBE sees output gap closing, but expresses caution on monetary policy easing: The CBE projects that the negative output gap will narrow, with economic output reaching its potential level by the end of this fiscal year. While demand-side inflation could emerge after this point, it is expected to remain under control with the current monetary policy. However, if the GDP growth accelerates faster than expected, this could increase inflationary risks, which in turn would require a more cautious approach to any further monetary easing.

The country’s external position is becoming stronger, primarily driven by a current account deficit that has shrunk by more than 50% compared to the same quarter in the previous year. This significant improvement is mainly supported by a surge in remittances, growth in net services receipts, and a narrowing non-hydrocarbon deficit.

Money supply dynamics: M2 growth slowed significantly in 2Q 2025, averaging 24.8% compared to 30.6% in the previous quarter. The real growth of local currency loans to the private sector continued its acceleration, reaching an average of 12.6% in 2Q 2025, compared to an average of 10.1% in the previous quarter. Meanwhile, net foreign assets in the country’s banking sector reached USD 14.94 bn in June.

Let’s talk easing cycle and its impact so far: While the CBE began its easing cycle in 2Q, its current monetary stance is still considered appropriate to support the path of disinflation, the report noted. “Around 65%of the cumulative 325 basis points reduction in policy rates during April and May 2025 was transmitted to the interbank market throughout 2Q 2025,” the CBE noted. Yields on EGP-dominated government securities inched down in the second quarter, a modest initial market reaction to the reduction in interest rates. Meanwhile, Egyptian Eurobond yields dropped by an average of 134 basis points in the same period. This is part of a downward trend that started at the beginning of FY 2024-2025, reflecting a boost in investor confidence.

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