The Central Bank of EG’s interest rate cut to 21.00% on October 2, 2025, signals a continued easing cycle. This is the lowest level since November 2024, when rates stood at 27.25%. The decision came below market expectations of 22.00%, underscoring a more accommodative stance amid easing inflation pressures and slowing economic growth.

Drivers this month

• Inflation eased to 11.30% YoY in September, down from 13.10% in July.
• GDP growth slowed to 2.10% YoY in Q2 2025, below the 3.50% average of 2024.
• Currency stability improved, with the EGP/USD rate steady near 30.50.

Policy pulse

The current 21.00% rate remains well above the 6% inflation target, but the gap is narrowing. The central bank appears prioritizing growth support while cautiously monitoring inflation dynamics.

Market lens

Immediate reaction: The EGP strengthened 0.40% against the USD within the first hour post-announcement, while 2-year government bond yields fell 15 basis points, reflecting market approval of the easing move.

Core macroeconomic indicators reveal a mixed but improving picture. Inflation, the primary driver of monetary policy, has moderated significantly from its peak of 35.00% in late 2023 to 11.30% in September 2025. Meanwhile, GDP growth has decelerated, reflecting external headwinds and subdued domestic demand.

Inflation trends

Inflation’s downward trajectory is the most critical factor enabling rate cuts. The 11.30% YoY reading is the lowest since early 2023 and compares favorably to the 12-month average of 14.80%. This easing is driven by lower food and energy prices, which contributed -0.40 and -0.20 percentage points respectively to the monthly CPI change.

Growth and employment

GDP growth slowed to 2.10% YoY in Q2 2025, down from 3.50% in Q4 2024. Unemployment remains elevated at 11.70%, pressuring policymakers to maintain accommodative conditions. Industrial output contracted 0.50% MoM in August, signaling ongoing challenges in manufacturing.

Fiscal policy & budget

The government’s budget deficit narrowed to 5.20% of GDP in H1 2025, aided by improved tax collection and lower interest expenses. However, public debt remains high at 85% of GDP, limiting fiscal space. The central bank’s easing complements fiscal efforts to stimulate growth without exacerbating debt risks.

Financial market indicators align with this trend. The EG sovereign bond yield curve has flattened, with 2-year yields down 120 basis points since April. The EGP currency index has gained 3.50% since the last rate cut, reflecting improved investor confidence. Inflation expectations, measured by breakeven rates, have declined from 14% to 10.50% over the same period.

Market lens

Immediate reaction: The EG currency index rallied 0.40% post-decision, while 2-year yields dropped 15 basis points, confirming market endorsement of the easing stance.

Looking ahead, the central bank faces a delicate balancing act. Inflation remains above target, but growth risks and external uncertainties justify continued accommodation. Three scenarios emerge for the next 12 months:

Bullish scenario (30% probability)

• Inflation falls below 8% by mid-2026.
• GDP growth rebounds to 4% YoY.
• Further rate cuts to 18% support expansion.

Base scenario (50% probability)

• Inflation stabilizes near 10%.
• Growth remains modest at 2.50% YoY.
• Rates hold steady around 20-21%.

Bearish scenario (20% probability)

• Inflation spikes above 15% due to external shocks.
• Growth stalls or contracts.
• Central bank reverses easing, hikes rates back above 25%.

Risks and external factors

Geopolitical tensions in the region and volatile commodity prices remain key risks. A sudden rise in global oil prices could reignite inflationary pressures. Conversely, improved trade relations and fiscal reforms could bolster growth and ease monetary policy further.

The October 2025 interest rate cut to 21.00% reflects the Central Bank of EG’s cautious optimism amid easing inflation and slowing growth. While the rate remains high by global standards, the downward trend signals a shift toward normalization. Policymakers must navigate persistent inflation risks and external uncertainties carefully. Financial markets have responded positively, but vigilance is required to sustain momentum.

Key indicators will be inflation trajectory, fiscal discipline, and geopolitical developments. The coming quarters will test the resilience of the current easing cycle and its impact on economic recovery.

Key Markets Likely to React to Interest Rate Decision

Interest rate decisions in EG significantly influence local currency strength, bond yields, and equity valuations. The following tradable symbols historically track these dynamics and are expected to react to the latest decision:

• EGPUSD – The primary currency pair reflecting EG’s monetary policy impact on exchange rates.
• EGX30 – EG’s benchmark equity index, sensitive to interest rate changes.
• EFG – A leading financial services stock, correlated with credit conditions.
• EGPUSDT – A stablecoin pair reflecting currency stability and capital flows.
• USDTRY – Regional currency pair influenced by similar monetary policy trends and geopolitical risks.

FAQs

What is the significance of EG’s latest interest rate cut?

The cut to 21.00% signals a shift toward easing monetary policy amid lower inflation and slower growth, aiming to support economic recovery.

How does the interest rate decision affect inflation?

Lower rates can stimulate demand, potentially increasing inflation, but current easing is justified by falling inflation pressures and the need to boost growth.

What are the risks to EG’s monetary policy outlook?

Key risks include geopolitical tensions, commodity price shocks, and fiscal constraints that could force a policy reversal or slower easing.

Takeaway: EG’s interest rate easing reflects cautious optimism but requires careful monitoring of inflation and external risks to sustain growth momentum.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.