Back-to-back interest rate cuts spur investment, exports: Egyptian business leaders

Daily News Egypt

25-05-2025

The Central Bank of Egypt's (CBE) second consecutive interest rate cut is fueling optimism among investors, with key figures in the business community hailing the move as a strong catalyst for economic growth, investment, and export expansion.
Ahmed El-Zayat, a member of the Egyptian Businessmen's Association and a board member of the General Division of Investors at the Federation of Egyptian Chambers of Commerce, described the decision as a 'positive signal for the private sector,' reinforcing market confidence and economic stability.
The CBE's Monetary Policy Committee announced on Thursday that it had lowered key interest rates by 100 basis points for the second time in a row. The overnight deposit rate was reduced to 24%, the overnight lending rate to 25%, and the main operation and discount rates to 24.5%.
El-Zayat emphasized that lower borrowing costs will incentivize the private sector to initiate new projects and production lines at more competitive rates, ultimately driving up overall investment and production capacity. He noted that this also opens the door to increased exports, job creation, market stabilization, and lower consumer prices.
Industries most likely to benefit from the rate cuts include manufacturing, real estate, hospitality, and public-private partnership (PPP) projects—sectors that depend heavily on bank financing. El-Zayat also highlighted the macroeconomic benefits of the rate cut, pointing out that each 1% reduction could ease the state's budget deficit burden by approximately EGP 80bn.
Mohamed Saada, Chairman of the Port Said Chamber of Commerce and Secretary-General of the Federation of Egyptian Chambers of Commerce, echoed this sentiment. He said the decision will lower the cost of financing, enabling small and medium-sized enterprises (SMEs) to expand and generate employment opportunities.
Saada added that the rate cut will not only boost the taxable profits of companies but also reduce borrowing costs for consumers, particularly for car and home loans—stimulating broader economic activity.
According to Saada, several macroeconomic signals supported the CBE's decision, including the recent appreciation of the Egyptian pound, with the U.S. dollar falling below EGP 50 for the first time since December. Furthermore, the significant gap between the current interest rate and the inflation rate, which stands at 13%, has given the Central Bank room to ease monetary policy.
He noted that the move aligns with the state's current economic direction, which prioritizes investment and industrial development, while maintaining a balance between growth and inflation control.
Saada also pointed to Egypt's improving external position: the balance of payments recorded a surplus of $489 million in Q2 of the 2024/2025 fiscal year, reversing a deficit of $638 million during the same period in the previous year, and $991 million in Q1 of this fiscal year.
The rate cuts are also expected to shift capital from bank deposits to more productive investment channels. While real interest rates remain relatively high, Saada believes the decision will stimulate investor appetite and attract fresh inflows of direct investment.
Rasha El-Qady, Chairperson of the Tourism Committee at the Egyptian Junior Business Association and a member of the Entrepreneurship Secretariat at the National Front Party, called the rate cut a strategic step to support entrepreneurship, tourism, and hospitality—particularly in light of the financial pressures faced by young business owners.
El-Qady noted that easier access to financing would boost the competitiveness of startups and SMEs both locally and globally, while reducing operational costs and enhancing their ability to scale. She emphasized the importance of complementing this monetary policy shift with broader reforms, including legislative, tax, and customs incentives, as well as improved access to alternative financing tools such as incubators and venture capital.
She also called for a comprehensive financing strategy tailored to emerging and small-scale tourism ventures, especially in underdeveloped regions, linking financial support to innovation, digital transformation, and local employment generation.
Meanwhile, the rate cut has already impacted commodity markets. According to Gold Bullion's technical analysis, the price of 21-karat gold dropped 0.7% on Thursday, from EGP 4,670 to EGP 4,635 per gram. The firm noted that lower interest rates reduce the attractiveness of bank certificates of deposit, encouraging some capital to flow into gold as an alternative investment.
Gold Bullion also warned that reduced demand for government bonds, a likely outcome of rate cuts, could lead to further depreciation of the Egyptian pound. As gold prices are closely tied to the dollar/pound exchange rate, any decline in the local currency may result in a renewed rise in gold prices.