The Central Bank of Egypt’s Monetary Policy Committee kicked off its first meeting of the year with a cut, lowering key interest rates by 100 bps on the back of growing confidence that inflation is on a sustained downward path, CBE said in a statement (pdf) last Thursday.

The overnight deposit rate now stands at 19.00%, while the lending rate was lowered to 20.00%, with the main operation and discount rates set at 19.50%. Meanwhile, the bank trimmed the required reserve ratio (RRR) — the share of deposits banks must hold at the central bank without earning interest — by 200 bps to 16.00%, injecting more liquidity into the banking system.

The cut fell in line with expectations, with nine out of the eleven analysts polled byEnterpriseAM pencilling in a rate cut, with expectations ranging from a careful 100 bps to a bolder 200 bps. A consensus emerged that the CBE had successfully moved past a crisis management phase, with EG Bank board member Mohamed Abdel Aal even describing the central bank as now operating from a “position of strength” on the back of a more convivial relationship with IMF and ample FX liquidity.

The rationale

Inflation continues to ease and growth remains below potential. Annual headline inflation slowed 0.4 percentage points to 11.9% in January following a 14.2 percentage point drop in the average annual inflation rate between 2024 and 2025 on the back of a broad-based slowdown in price pressures supported by lower food inflation, exchange rate stability, and subdued demand. With disinflation appearing to be on track — and more importantly entrenched — policymakers are understandably more confident of managing to hit the 7% (±2%) target by year-end while also lowering rates.

Moderating growth is also giving the central bank more reasons to cut. Real GDP is estimated to have expanded by 4.9% y-o-y in 4Q 2025, down from 5.3% y-o-y the previous quarter. With output still below full capacity, the central bank sees limited near-term inflationary risks, allowing it to cautiously pivot toward supporting economic activity while maintaining a focus on price stability.

The analysis

Analysts broadly agree that the central bank’s tone has shifted — and the easing cycle is only beginning. Capital Economics’ Senior MENA Economist James Swanston noted a subtle but telling change in language: policymakers now say inflation will “reach” their target, rather than merely “converge toward” it. The firm expects another 600 bps of cuts this year, which would bring the overnight deposit rate down to 13.00%. That view aligns with wider market expectations, where 13 out of 14 economists surveyed by LSEG had anticipated easing, with several — including Capital Economics — correctly calling a 100 bps move.

What stood out to many was the RRR cut. By lowering the ratio by 200 bps, the central bank unlocked bns in liquidity — a step analysts describe as more consequential than the rate cut itself. EG Bank Board Member Mohamed Abdel Aal called it the “stronger and more meaningful signal,” arguing that “cutting rates is an invitation to invest, while cutting the reserve requirement provides the liquidity necessary for that investment.” Economist Hany Abou El Fotouh echoed the view, saying the move reduces funding costs and accelerates the pass-through of easing to businesses and households.

Thndr’s Amr El Alfy said the decision reflects growing confidence that inflation is moving toward the target range, adding that the additional liquidity could lower borrowing costs for businesses and the government while supporting demand for treasury bills. HC Securities’ Head of Equity Research Nemat Choucri described the step as a clear expansionary signal that should lift credit growth, even as policymakers remain mindful of geopolitical risks and fiscal reform commitments.

Others see the combined impact as larger than appears on paper. Hany Genena of Al Ahly Pharos said the move is larger than a mere 100 bps cut “once the liquidity impact of the reserve requirement reduction is factored in.” Banks’ excess liquidity at the central bank has dropped sharply over the past year — from around EGP 1 tn a year ago to EGP 80 bn — limiting room to expand credit. By releasing required reserves, banks can meet lending demand without squeezing profitability, particularly with net interest margins still elevated at around 9% at some institutions, Genena said.

Improving macro conditions have also reinforced confidence. Analysts point to record foreign currency reserves and a return to a net foreign asset surplus as giving policymakers more space to ease without destabilizing markets. Former Banque Misr Vice Chairman Sahar El Damati said slowing inflation opened the door for cuts, adding that lower rates should ease government debt serving costs and support corporate expansion. She expects rates could fall further to 12.00-13.00% by year-end if disinflation continues.

The outlook

Capital Economics’ Swanston expects the central bank to continue cutting rates throughout the year as inflation declines, noting risks to interest rates are “to the downside” if disinflation proceeds faster than expected.

Still, policymakers remain cautious. The CBE said future rate decisions will depend on inflation developments and global and domestic risks, including geopolitical tensions and fiscal reforms, as it balances supporting growth with maintaining price stability.

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