Egypt's Central Bank Keeps Interest Rates Unchanged

In line with widespread expectations, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to keep the overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 18.25 percent, 19.25 percent, and 18.75 percent, respectively.

The discount rate was also kept unchanged at 18.75 percent.

On a global level, the MPC attributed its decision to the revising down of forecasts for key international commodity prices compared to those underlying the previous MPC meeting held in March.

It added that the global inflationary pressures have also cooled down as a result of the monetary policy tightening on the part of major central banks, the declining energy prices, and a reduction in global supply bottlenecks.

Likewise, forecasts for economic growth have broadly stabilized, while volatility in the financial conditions of key advanced economies has eased since March.

Domestically, CBE explained that the growth of real economic activity eased to 3.9 percent in the fourth quarter (4Q) of 2022, down from 4.4 percent in 3Q of 2022, which indicates that growth during the first half (1H) of the current FY2022/2023 posted 4.2 percent.

“Detailed sectoral data for 3Q of 2022 show that growth was primarily driven by private sector economic activity, specifically tourism, agriculture and trade. Additionally, most leading indicators point towards a slowdown of real GDP growth in the 1Q of 2023 Q1”, CBE explained.

Going forward, CBE projected Egypt’s real GDP growth to continue its decline in FY2022/2023 compared to the previous fiscal year, before recovering thereafter.

In the meantime, the unemployment rate receded to 7.2 percent in 4Q of 2022, down from 7.4 percent in the preceding quarter, mainly driven by an increase in employment compared to the previous quarter, CBE noted.

MPC said that the recent decline in Egypt’s inflation rates came as a result of the reduced effect of major inflationary shocks, including, for instance, domestic supply chain disruptions that affected main core food commodities and the implications of the exchange rate developments.

Egypt’s inflation has been accelerating since March 2022, when the Russian-Ukrainian conflict started. Yet, Egypt’s annual headline inflation cooled down to 31.5 percent in April, down from 33.9 percent in March.

This decrease in headline inflation is the first in 10 months, according to the latest calculations released this month by the Central Agency of Public Mobilisation and Statistics (CAPMAS).

“Economic developments following the last MPC meeting were broadly in line with expectations", MPC highlighted.

The committee emphasized its "ongoing evaluation of the effectiveness of both the 10 percent (1000 basis points) rate hike -- implemented since March 2022 -- and the four percent (400 basis points) increase in the required reserve ratio -- implemented in September 2022 -- in containing inflationary pressures in a data-driven manner."

The MPC also explained that the path of future policy rates remains a function of forecasted inflation rather than prevailing inflation rates.

Yet, MPC stressed that achieving a tight monetary stance is a necessary condition to reach the CBE’s upcoming inflation targets of seven percent (± 2 percent) on average by 4Q of 2024 Q4 and five percent (± 2 percent) on average by 4Q of 2026 Q4.

“The committee is closely tracking the inflation risks that may arise from possible supply chain disruptions and geopolitical tensions, among other factors.

The MPC will continue to monitor all economic developments and will not hesitate to adjust its stance in line with its price stability mandate”, MPC affirmed