Improved Economic Indicators Raise Expectations of Interest Rate Cuts

Egypt’s business community is looking ahead with optimism to the Central Bank of Egypt’s (CBE) Monetary Policy Committee meeting on Thursday, hoping for further steps to support the macroeconomy.

The past months have seen international and local experts highlight improving indicators, strengthening expectations that the central bank will begin lowering interest rates.

Most analysts agree that a cut is on the horizon, though opinions vary over its size. Forecasts range from a reduction of 1 to 3 percentage points, while prominent businessman Naguib Sawiris has called for a more aggressive 4-point cut.

Optimism stems largely from a string of positive macroeconomic signals. Current interest rates - 24% on deposits and 25% on overnight lending - are widely seen as excessively high.

Economist Ahmed Moati told Asharq Al-Awsat he expects the central bank to cut rates by 2% this week, with scope for further reductions in subsequent meetings.

He pointed to several supporting factors: a stable exchange rate, easing inflationary pressures, rising revenues from tourism and exports, and the US Federal Reserve’s hints at lowering rates. Research by HC Securities and Investment also forecast a 200-basis-point cut, citing macroeconomic improvements and shifting geopolitical dynamics.

Annual urban consumer inflation slowed to 13.9% in July from 14.9% in June, further strengthening the case for easing.

Standard Chartered Bank projects inflation to remain in the 13–17% range and expects Egypt’s policy rate to fall to 19.25% by year-end. The CBE itself, in a May report, projected inflation to fall sharply to between 14–15% in 2025 and 10–12% in 2026, down from nearly 28.4% in 2024.

Sawiris expressed confidence in Egypt’s growth trajectory, predicting GDP expansion of 4% in the second half of the year.

He urged a rate cut of 1–4 percentage points to encourage investment, noting declining inflation, a stronger pound, and a falling dollar. But he also warned of Egypt’s $165 billion external debt burden, suggesting solutions such as selling coastal land for hard currency and accelerating privatization of state-owned firms.

The Egyptian pound has strengthened to EGP 48.30 per dollar, compared with around EGP 52 weeks earlier. Unemployment fell to 6.1% in Q2 2025, down from 6.3% in Q1.

Meanwhile, Egypt’s non-oil private sector showed signs of stabilization in July, with employment rising for the first time in nine months, according to S&P Global’s Purchasing Managers’ Index, which improved to 49.5 from 48.8 in June.

Foreign exchange inflows are also increasing. Standard Chartered noted that portfolio and official investments continue to support confidence in the pound, with expectations that more than half of a $12.5 billion investment pledge from Qatar and Kuwait will be disbursed by year-end.

Remittances surged 60% year-on-year in March, further improving the current account outlook.

According to a Reuters poll of 13 economists, Egypt’s economy likely grew by 4% in the fiscal year ending June 2025, up from earlier projections of 3.8%. Growth in the current fiscal year is expected to reach 4.6%, supported by IMF-backed reforms and a gradual recovery in manufacturing.

Prime Minister Mostafa Madbouly recently declared that Egypt had overcome its recent economic crisis, though he acknowledged that commodity prices remain high relative to improved fundamentals.

“What is needed now is for citizens to actually see lower prices,” he said.