Cairo – Mubasher: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided, in its first meeting of the year, to reduce key policy rates by 100 basis points (bps).
In 12 February meeting, the MPC decided that the overnight deposit and lending rates will stand at 19% and 20%, respectively, according to a press release.
The main operation and the discount rates were reduced to 19.5%.
In addition, the CBE board of directors reduced the required reserve ratio (RRR) for commercial banks from 18% to 16%. The reduction in the RRR aims to safeguard the effectiveness of monetary policy transmission through ensuring effective pass through of CBE decisions to money markets and the broader economy by appropriately calibrating liquidity conditions within the banking system.
These decisions reflect the MPC’s assessment of current inflation dynamics and the evolving outlook since the previous meeting in addition to taking in consideration the global economic growth, which continued to be resilient, supported by relatively accommodative financial conditions.
However, this momentum of resilience continues to be dampened by geopolitical tensions, trade policy uncertainty, and moderating demand in major economies. While inflation has been broadly contained across advanced and emerging market economies, central banks have mostly maintained a cautious approach to monetary easing.
The CBE noted that within commodity markets, ample global supply has cushioned oil prices against shocks, while agricultural prices have shown varying trends.
Nonetheless, the global outlook remains subject to uncertainty, particularly from possible supply-chain disruptions, adverse shifts in trade policies, and potential escalation of geopolitical tensions.
Egypt’s GDP & Inflation
On the domestic level, the CBE said that the real GDP growth is expected to register around 4.9% in the fourth quarter (Q4) of 2025 compared to 5.3% in Q3-25.
The growth in Q4-25 was driven by positive contributions from non-petroleum manufacturing, tourism, and communications.
Furthermore, the CBE forecasts real GDP growth to average 5.1% in fiscal year (FY) 2025/26, up from 4.4% in the previous year.
Nevertheless, output remains below, but gradually approaching, potential capacity, with the current output trajectory continuing to support the forecasted disinflation path in the short term. This indicates that demand-side inflationary pressures are expected to remain contained under the current monetary stance.
With respect to inflation, annual headline and core readings declined to 11.9% and 11.2% in January 2026 from 12.3% and 11.8% in December 2025, respectively, continuing the downward trajectory observed throughout 2025.
In particular, headline and core inflation averaged 14.1% and 12.1% in 2025, down from 28.3% and 27.2% in 2024, respectively. This deceleration was driven by food inflation reaching its lowest levels in four years, alongside a slower deceleration in non-food inflation. The latter benefitted from recent exchange rate appreciation, subdued demand due to the tight monetary stance, and favorable inflation expectations.
While monthly dynamics are normalizing to pre-shock levels, January 2026 saw a typical seasonal uptick ahead of Ramadan.
However, this uptick was partially mitigated by mild declines in non-food inflation, especially services. Overall, the recent broad-based easing in monthly price dynamics and the declining frequency and magnitude of fiscal measures point to an improving outlook.
Inflation Outlook
Reflecting recent inflation outturns, the CBE forecasts point to annual headline inflation remaining largely stable near current levels in Q1-26, and is expected to resume its broadly declining path during the remainder of the year.
As such, inflation is on track to reach the CBE target of 7% (± 2 p.p.), on average, in Q4-26, supported by a broad-based easing of inflationary pressures, gradual dissipation of earlier shocks, contained demand-side pressures, and a strengthening of the external position.
However, the disinflation path remains constrained by relatively persistent non-food inflation and susceptible to upside risks, including a higher-than-expected pass-through from fiscal consolidation measures to inflation, and a possible re-escalation of global and regional geopolitical tensions.
Looking ahead, the MPC will determine the magnitude and pace of monetary easing based on evolving economic conditions, with policy decisions remaining contingent on the forecasted inflation trajectory, incoming data, and the balance of risks.
Furthermore, the CBE stated that the committee will continue to remain vigilant and stands prepared to adjust its policy instruments as needed to fulfill its price-stability mandate, steering inflation toward the CBE target of 7% (± 2 p.p.) in Q4-26, on average.
