Egypt Squeezes in 5th Rate Cut of Year After Inflation Slows

Core Viewpoint - Egypt's central bank has cut interest rates for the fifth time this year, responding to a surprising slowdown in inflation, which allows for a resumption of the easing cycle [1][3]. Group 1: Interest Rate Changes - The central bank reduced its benchmark deposit rate by 100 basis points to 20% and the lending rate by the same amount to 21% [1]. - Only two out of five economists surveyed anticipated this cut, while the others expected a continuation of the rate pause from November [2]. Group 2: Economic Context - Egypt had previously raised borrowing costs to a record high and devalued its currency by approximately 40% in early 2024, actions that were part of securing a $57 billion global bailout to stabilize the economy [2]. - Inflation peaked at a record 38% in September 2023 but slightly decreased to 12.3% in November, despite recent cuts in fuel subsidies as part of IMF-backed reforms [3]. Group 3: Future Outlook - The central bank anticipates that inflation will continue to ease in 2026, although there are ongoing pressures from non-food inflation and global geopolitical tensions [4]. - The Monetary Policy Committee stated that the recent rate cut aligns with maintaining a monetary stance that anchors inflation expectations and supports the disinflation path [4]. - Analysts, including Mohamed Abu Basha from EFG Hermes, noted that the 100 basis point cut still reflects a conservative monetary policy stance [4]. Group 4: IMF Agreement - Egypt and the IMF reached a staff-level agreement on two reviews of an expanded $8 billion loan program, which, upon approval, will provide access to two tranches totaling $2.5 billion [5].