In brief
- The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) lowered the key deposit rate by 100bps to 24.0% in its May 2025 meeting. Equally, the overnight lending rate and the rate of the main operation were slashed by 100bps to 25.0% and 24.5%, respectively.
- The monetary policymakers nowcasts 1Q2025 real GDP growth at 5.0% y/y and more than double the 2.3% y/y growth recorded in a similar period last year. The lower inflationary environment and a stable FX have improved the growth prospects despite the negative spillover from global trade tensions.
- Inflation has broadly cooled with the April 2025 headline print coming in at 13.9%. The inflation downtrend has been favourably bolstered by base effects and the hitherto tighter monetary policy stance. The disinflation path notwithstanding, we still expect a non-linear trend towards the set target of 5.0% ±2.0% average inflation in 4Q2026, although administered prices are likely to slightly lift the inflation profile.
- However, the negative output gap as flagged by the monetary policymakers suggests that demand-side inflationary pressures are subdued and as such, core inflation is expected to remain downward sticky. The 13.3% YTD decline in global oil price and the backwardation in the commodity’s futures price to the end of the year will also anchor inflationary expectations in the near term.
- The Egyptian Pound (EGP) has appreciated 1.5% quarter-to-date with the high FX Reserves offering the much-needed boost. Net international reserves hit USD 48.1bn in April 2025, while net foreign assets improved to USD 15.0bn in April 2025 from USD 10.2bn a month earlier. These developments are likely to anchor EGP stability and minimize the risk of imported inflation.
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