The Central Bank of Egypt decides to raise the interest rate by 2%

Cairo – Eco - Fady Labib : The Monetary Policy Committee of the Central Bank of Egypt decided, in its meeting today, to raise the overnight deposit rate, the central bank’s overnight lending rate, and the main operation rate by 200 basis points, to 18.25 percent, 19.25 percent, and 18.75 percent. percent, respectively. The discount rate was raised by 200 basis points to 18.75 percent ...

 

Globally, the outlook for international commodity prices has softened compared to that of the previous MPC meeting, but its outlook remains uncertain. Notable factors include the outlook for global supply bottlenecks and global economic activity, particularly in light of China's reopening coupled with recent financial sector problems in advanced economies. The latter factor contributed to significant fluctuations in the indicators of financial conditions in major markets such as the United States and the European Union, which confirms the increased level of uncertainty regarding the global economic outlook.

Domestically, growth in real economic activity declined to 3.9% in the fourth quarter of 2022 compared to 4.4% in the third quarter of 2022, which means that growth during the first half of the fiscal year 2022/23 recorded 4.2%. Detailed sectoral data for the third quarter of 2022 shows that growth was mainly driven by improved private sector activity, specifically tourism, agriculture and trade. In addition, most of the leading indicators continue to register positive growth rates in the first quarter of 2023. Going forward, real GDP growth is expected to moderate in fiscal 2022/23 compared to the previous fiscal year, before rebounding thereafter. Meanwhile, the unemployment rate recorded 7.2 percent in the fourth quarter of 2022, compared to 7.4 percent in the previous quarter.

Annual general inflation in urban areas continued to rise, recording 25.8% and 31.9% in January and February 2023, respectively. Similarly, annual core inflation recorded 31.2% in January 2023 and hit an all-time high in February 2023 recording 40.3%. The strong dynamics seen reflect the combined influence of several factors. These factors include domestic supply chain disruptions, depreciation of the Egyptian pound, and demand-side pressures as evidenced by developments in real economic activity relative to potential capacity and broad monetary growth outcomes. In addition, the seasonal effects of Ramadan affected Umrah trips and food prices.

The Central Bank of Egypt’s Monetary Policy Committee continues to assess the impact of front-loaded tightening policies in a data-driven manner, as recent inflation developments have shown broadly higher inflation rates across CPI items. These recent developments require an additional tightening of the monetary stance, not only to contain demand-side pressures as mentioned above, but also to avoid broad and persistent inflationary effects that could result from supply shocks, with the aim of stabilizing inflation expectations.

In light of the above, the Monetary Policy Committee decided to raise interest rates by 200 basis points and confirmed that the path of future policy rates still depends on expected inflation and not prevailing inflation rates. The Monetary Policy Committee stresses that achieving a tight monetary stance is a necessary condition for achieving the upcoming CBE inflation targets of 7% (±2 percentage points) on average by 2024 Q4 and 5% (±2 percentage points) on average by 2026 Q4 . The MPC will continue to monitor all economic developments and will not hesitate to adjust its position in line with its price stability mandate.