CAIRO (Reuters)

Egypt’s central bank lowered overnight interest rates by 225 basis points on Thursday, marking its first cut in over five years. The move was attributed to decreasing inflation, which has made further rate cuts possible.

The bank adjusted the lending rate to 26% and the deposit rate to 25%. Analysts had predicted a more modest cut of 200 basis points according to a Reuters poll of 17 analysts.

Annual headline inflation, which reached a record high of 38% in September 2023, has continued to decrease, falling to 12.8% in February and 13.6% in March, down from 24.0% in January.

The Monetary Policy Committee stated that recent declines in inflation were a result of favorable base effects, cumulative monetary tightening, and the diminishing impact of previous economic shocks. They expect inflation to keep reducing through 2025 and 2026, albeit at a slower pace, supported by recent fiscal measures.

The decline in inflation creates ample room for easing interest rates, they noted. Additionally, signs indicate that economic growth is picking up, as preliminary Q1 2025 indicators show recovery in economic activity for the fourth consecutive quarter, exceeding the 4.3% growth registered in Q4 2024.

This interest rate cut is the first adjustment since March 2024 when rates were increased by 600 basis points to stabilize the currency’s value against the dollar, part of an $8 billion IMF support package.