The International Monetary Fund (IMF) has called on Egypt to exercise caution in its path of interest rate cuts, given the global uncertainty resulting from recent decisions by US President Donald Trump regarding customs duties.
Egypt had cut interest rates last month for the first time in about five years, after the annual inflation rate fell to 13.6%, less than half the peak it reached in September 2023.
Despite some adjustments in expectations following Trump’s decisions, many economists believe that the Central Bank of Egypt may undertake a cumulative reduction of between 600 and 800 basis points during 2025.
Mohamed Maait, the IMF’s Executive Director for Arab countries and the Maldives, stressed the importance of proceeding cautiously in making monetary decisions.
In an interview in Washington, Maait explained: “Given the current global and regional situation, caution must be exercised, and complete certainty about the correctness of the decision must be ensured before taking it, based on data, analyses, and information. You cannot make a decision and then backtrack later.”
However, according to Jihad Azour, Director of the Middle East and Central Asia Department at the Fund, any further reductions should be approached with caution.
Azour said in an interview in Washington: “It is extremely important to be vigilant in managing monetary policy in light of the current shocks. We see risks of a return of inflation, and therefore it is necessary to maintain a correct policy that leads to reducing inflation to stable single-digit levels.”
Taming inflation is a priority
Combating inflation has been a central goal for President Abdel Fattah al-Sisi’s government and monetary policymakers, who allowed the Egyptian pound to depreciate by more than 40% over a year ago and raised fuel, electricity, and other commodity prices to secure external financing and end a severe economic crisis. A rescue deal led by the UAE in cooperation with the “IMF” brought financial support to Egypt of about $57 billion.
In March 2024, the Central Bank raised interest rates to a record high, coinciding with the devaluation of the currency. Interest rates remained unchanged until last month’s reduction of 225 basis points to 25%.
The Monetary Policy Committee announced at the time that inflation is expected to continue declining during the current and coming year, albeit at a slower pace compared to the first quarter of 2025. However, it pointed to upside risks including “the trade war between China and the United States, and the escalation of regional geopolitical conflicts.
Market pressures and warnings of decline
According to Goldman Sachs estimates, the local market witnessed foreign capital outflows exceeding $1 billion in April, following Trump’s announcement of new customs duties, which triggered global financial turmoil.
The Egyptian pound recorded its lowest historical levels following these developments before recovering some of its losses. Egypt is subject to the minimum US customs duties, estimated at 10%.
Despite the recent cut, the real interest rate – the rate adjusted for inflation – remains among the highest globally, at around 11.5%.
