The Central Bank of Egypt cut interest rates by 225 bps in its second meeting of the year on Thursday, the bank said in a statement (pdf). The move marks the Monetary Policy Committee’s (MPC) first change to the policy rates since March 2024, following seven consecutive meetings where rates were held steady. It is also the bank’s first rate cut since November 2020. The decision was supported by cooling inflation in the first quarter of 2025.

Where rates currently stand: The overnight deposit rate now stands at 25.0%, the overnight lending rate at 26.0%, and the main operation and disc. rates at 25.5%.

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Most economists and analysts we polled last week saw this coming, with most expecting the MPC to cut rates by at least 200 bps, while others gave a more conservative estimate of a 100 bp cut.

“The sharp decline in annual headline inflation” in 1Q 2025 created “ample room for commencing the easing cycle,” the MPC said, noting that inflation during the quarter dropped by nearly 9 percentage points. Additionally, inflation is expected to continue to fall throughout this year and 2026, “albeit at a slower pace” than that of 1Q, the committee said. “Improvements in economic indicators despite recent global developments prompted the CBE’s decision, with the bank seeing that it could still meet its goals this year as inflation continues to decline,” Thndr Securities Brokerage’s Chief Equity Strategist Amr El Alfy told EnterpriseAM.

However, inflation is still “vulnerable to upside risks” from recent global developments, including the US-China trade war and continued geopolitical tensions, the MPC said.

REMEMBER- Annual headline urban inflation hit 13.6% in March, marking a 0.8 percentage point increase from the 12.8% recorded in February and ending a four-month-long downward trend. Food and beverage price inflation drove the increase, with the segment rising 2.9 percentage points to 6.6% in March. On a monthly basis, inflation edged up by 0.2 percentage points to 1.6%.

The CBE is slowly changing its tune in response to the economic outlook. “What stood out for me was the shift in tone compared to the last meeting, which felt overly cautious at the time. Now, the central bank is clearly acknowledging the disinflationary trend,” economist Mona Bedair told us. “While the tone is more balanced this time — recognizing tighter real rates and easing inflation expectations — it’s still anchored in risk awareness, particularly around fiscal pass-through, regional geopolitics, and global trade dynamics,” she said.

The move was essential for economic growth and investment, Al Ahly Pharos’ Esraa Ahmed told EnterpriseAM. “The decision was a satisfying one — it stays within the realm of a cautious cut that the current economic situation needs. We believe the bank needed to begin its easing cycle to nourish the economy, lessen investment costs, encourage foreign direct investment, and potentially benefit from the trade war, as it could prompt countries to invest in less affected economies,” Ahmed said. “This cut isn’t big enough to create much of an impact on its own, but it is an indication that the bank is moving towards the needed easing cycle,” she added.

More and even larger rate cuts could be coming our way. “If these risks prove to be better contained — or at least measurable — we could see a broader easing cycle ahead, Bedair said. “In my view, there’s room for a cumulative policy cut of more than 600 bps in 2025, depending on how inflation unfolds. This isn’t a pivot to an expansionary stance. It’s a controlled, data-driven recalibration — one that protects monetary credibility while finally starting to support real growth.”

The central bank believes that economic activity can reach its full potential in the next fiscal year. “Estimates for the output gap indicate that actual economic activity remains below its full potential … but is projected to reach full potential” by the end of FY 2025-26, the bank said.

The rate cuts are good news for Egypt’s debt servicing costs, which could now fall by over EGP 100 bn, a senior government source told EnterpriseAM, noting that every 100 bp reduction saves around EGP 50 bn in interest payments. Interest spending is set to make up the majority of the government’s total expenses in its newly drafted FY 2025-26 budget with some 50.2% of its total spending, equivalent to EGP 2.3 tn.

But the easing cycle may take time to filter through the budget, the source added. But in the longer term, the central bank’s anticipated monetary easing cycle — alongside the new budget’s assumption of a 16% average rate — should help ease the state’s debt burden over time.

We should also see the launch of alternative debt instruments soon following the cuts, as the Finance Ministry had been waiting for the bank to move before issuing Islamic sukuk, retail bonds, and other products, which are now much easier to price fairly in a more moderate interest rate environment.

Banks are already gearing up to cut rates on savings accounts, with CIB announcing in a note (pdf) to customers that it will cut interest rates on its savings accounts and its certificates of deposits (CDs) by 225 bps, starting today. Other banks could follow suit, including the National Bank of Egypt, which is set to soon hold a meeting to review interest rates on CDs in line with the CBE’s new rates, CEO Mohamed El Etreby said. However, some banks may choose not to cut their rates the whole 225 bps as they have become an important source of funding that banks may want to maintain — even if it means having to shoulder narrower margins and increasing costs, banking expert Hany Abou El Fotouh told us.

Banks had already been cutting rates in preparation for the CBE’s decision. Banque Misr, CIB, and QNB Alahli — to name a few — all slashed rates on their certificates in recent months in preparation for the CBE’s easing cycle. But even with reduced rates, “certificates will remain the safest bank savings instruments available,” banking expert Mohamed Abdel Aal said.

Lenders are also expected to turn to bonds to lock in the highest possible yield and could move to issue variable-yield certificates of deposit instead of fixed-rate ones during the CBE’s easing cycle, a senior banking executive told EnterpriseAM previously. To main profitability, banks could also turn towards the high-demand SME sector, reduce costs by digitizing services, and by “diversifying revenues through service fees and investing in government debt instruments,” Abou El Fotouh said.

The international press also reported the rate cut: Reuters | Bloomberg

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