The Central Bank of Egypt (CBE) has said that it will continue to follow economic developments and predictions in the coming stage, stressing that it will not hesitate to use all available monetary policy tools, including liquidity management operations, to maintain the restrictive monetary conditions, in order to achieve the target inflation rates of 7% (±2%) on average during the fourth quarter (4Q) of 2024 and 5% (±2%) on average in 4Q 2026.
The Monetary Policy Committee (MPC) of the CBE decided in its meeting on Thursday to keep the basic interest rates at the CBE at 18.25% for deposits, 19.25% for lending, and 18.75% for the credit and discount rate. It also fixed the price of the main operation at the CBE for the second time in a row.
The committee had made a similar decision on 18 May, after raising those prices by 2% at once on 30 March.
The CBE’s decision was widely expected by most experts, analysts, and local and international investment banks, despite the rise in inflation last May.
In its statement after the interest fixing decision, the committee stated that at the global level, global commodity price expectations continued to decline compared to expectations in previous meetings. Despite the contribution of restrictive monetary policy and low global energy prices in reducing global inflationary pressures, inflation levels remain above target levels in major economies.
The CBE added that the financial conditions of advanced economies witnessed some restrictions compared to what was presented to them at their meeting in May 2023, which supports the slight decline in global economic growth expectations.
At the local level, the committee noted that the real economic activity growth rate was recorded at 3.9% during 4Q 2022, compared to a growth rate of 4.4% during the third quarter of the same year. Therefore, the first half of the fiscal year 2022/2023 recorded a growth rate of 4.2%, noting that the detailed data for 4Q 2022 show that real GDP growth was driven by the positive contribution of net exports, in line with exchange rate developments.
According to the CBE’s MPC committee, the economic activity of the private sector continued to mainly support growth, driven by the positive contributions of the wholesale and retail trade, agriculture, and construction sectors. It pointed out that most of the preliminary indicators indicate a slowdown in the growth rate of gross domestic product during 1Q 2023, and that it is expected to slow down during the fiscal year 2022/2023.
With regard to the labor market, the committee indicated that the unemployment rate decreased slightly to 7.1% during the first quarter of 2023, compared to a rate of 7.2% during the previous quarter, mainly due to the increase in the number of workers.
Regarding prices, the committee indicated that the annual rate of general and basic urban inflation recorded 32.7% and 40.3% in May 2023, respectively, attributing this to the rise in the prices of food commodities mainly and the prices of non-food commodities as well. Both were affected by the government decisions made regarding administratively determined prices of goods and services, in addition to the seasonal demand for some basic food commodities.
According to the committee, the current indicators, including recent inflation indicators, indicate the consistency of the data received with the expectations that were presented to it during its meeting in May 2023.
The MPC confirmed that it will continue to evaluate the impact of the restrictive monetary policy that was taken and its impact on the economy according to the data received during the coming period. It added that the path of the basic interest rates at the CBE depends on the expected inflation rates and not the prevailing inflation rates.
