by Mahmoud Fouly

CAIRO, April 19 (Xinhua) -- Egypt's recent interest rate cut can boost market confidence as it sends a positive signal of easing inflation in the country, although the easing pace may be slow, experts have said.

Egypt's central bank on Thursday lowered key interest rates by 225 basis points, its first rate cut in over five years, setting the lending rate at 26 percent and the deposit rate at 25 percent.

The rate cut "aligns with upholding the appropriate monetary stance, with the aim of anchoring inflation expectations and safeguarding the projected disinflation path," the central bank said in a statement.

It reaffirmed its commitment to monitoring economic and financial conditions and using all available tools to steer inflation toward its target of 7 percent ± 2 percentage points by the fourth quarter of 2026.

Egypt has grappled with high inflation following currency devaluations and foreign currency shortages, with the rate peaking at a record 38 percent in September 2023 before trending downwards.

On Thursday, the central bank said the first quarter of this year witnessed a significant decline in annual inflation, as headline and core inflation fell to 13.6 percent and 9.4 percent in March, respectively, "with the latter recording its lowest rate in almost three years."

The decline is attributed to "a sizable favorable base effect, cumulative monetary tightening, and the fading impact of previous shocks," it said.

It added that inflation is "expected to continue declining throughout 2025 and 2026, albeit at a slower pace compared to the decline in Q1 2025," due to "the impact of recently implemented and planned fiscal consolidation measures in 2025, in addition to the downward stickiness of non-food inflation."

Fakhri El-Fiky, head of the Planning and Budget Committee in the House of Representatives, told Xinhua the central bank's move is "a clear signal that the easing cycle has begun."

The decision aims to achieve three goals: "stimulating investment, reducing debt servicing costs, and maintaining Egypt's appeal for foreign portfolio inflows," said El-Fiky, also a former board member of the central bank.

He said Egypt's success in bringing down annual headline inflation gave the central bank room to begin a gradual reduction in interest rates.

"Each 1-percent reduction in interest rates saves about 80 billion Egyptian pounds (1.6 billion U.S. dollars) annually in debt servicing costs, which means the 2.25-percent cut could save the state budget around 180 billion pounds in the next fiscal year," he explained.

"For anyone planning to expand or launch a productive or commercial project, now is the right time. Borrowing costs have dropped significantly," he said.

However, inflation is expected to keep easing at a slower pace, El-Fiky said, noting that the fuel price increases in April are likely to influence inflation trends, especially through their effect on production and transportation costs.

Abu Bakr al-Deeb, a political economy researcher and advisor to the Cairo-based Arab Center for Research and Studies, told Xinhua the rate cut sends "a message of confidence and a chance to stimulate the economy."

The move is "a positive step from the central bank to investors, reaffirming that Egypt remains an attractive investment environment," al-Deeb said.

"The decision will lead to the launch of new factories, an increase in exports, job creation, and a stronger Egyptian pound against the dollar," he said, adding that lower interest rates mean reduced debt burdens, a more active market, and higher national income.

The expert predicted strong gains in the Egyptian stock exchange during the upcoming week, as funds shift from bank deposits to equities, encouraged by lower interest rates that favor productive borrowing over saving.

However, al-Deeb also noted that inflation will ease "at a very slow pace, due to factors such as the recent rise in fuel prices and uncertainty in the global economy."

"The U.S. administration has been erratic in its trade policies," and the rate cut "will help stimulate the Egyptian market in the face of such tariff-related repercussions, even if only partially," he said.

Al-Deeb added that "the strong and growing ties between Egypt and China, along with strategic cooperation with Chinese partners, present real opportunities to attract investment and mitigate the effects of global trade tensions on the Egyptian economy." ■