The Central Bank of Egypt (CBE) said that its Monetary Policy Committee (MPC) will use all available tools to keep monetary conditions tight and lower monthly inflation rates. It will also keep guiding the annual inflation rates towards the CBE’s targets, aiming for price stability in the medium term.
In its meeting last Thursday, MPC decided to keep the overnight deposit and lending interest rates and CBE’s main operation rate at 19.25%, 20.25%, and 19.75%, respectively. The credit and discount rates were also kept at 19.75%.
The committee said in a statement that globally, economic activity slowed down. The monetary tightening policies by the major central banks lowered the economic growth expectations compared to what the MPC saw at its previous meeting.
It added that global commodity prices, especially energy prices, generally declined. It said that this was due to the drop in speculation about oil supply shortages and global demand. Global inflationary pressures also decreased recently because of the monetary tightening policies in many economies.
Therefore, inflation rate expectations for those economies dropped compared to what the MPC saw at the previous meeting.
“However, there is uncertainty about inflation expectations, especially for global energy prices, because of the geopolitical tensions that the world is facing,” MPC said.
Locally, the committee said that the real GDP growth rate slowed down during the second quarter of 2023, recording 2.9%, compared to 3.9% during the previous quarter. So the real GDP growth rate was 3.8% during the fiscal year 2022/ 2023, compared to 6.7% in the fiscal year 2021/2022.
The committee explained that this slowdown in the economic activity growth rate was mainly due to a shrinkage in total domestic investments, while both consumption and net exports added positively to the economic growth rate.
The GDP growth rate is expected to keep slowing down during the fiscal year 2023/2024 compared to the previous fiscal year. It will then gradually increase later, based on the actual data developments and the negative effects of geopolitical risks and their impacts, especially on the services sector.
About the labor market, the committee said that the unemployment rate was mostly stable, recording 7.1% during the third quarter of 2023.
It continued, “As expected, the annual rate of general urban inflation slowed down during October and November 2023, driven by the positive effect of the base period, recording 34.6% in November 2023 from 35.8% in October 2023. The annual rate of core inflation kept declining for the fifth month in a row, recording 35.9% in November 2023 from 38.1% in October 2023.”
According to the committee, the monthly developments matched the expectations, reflecting the seasonal drop in the prices of agricultural products, along with the increase in the prices of administratively set commodities during November 2023.
The data available since the previous MPC meeting in November 2023, including inflation data, matched the expectations. Based on that, MPC decided to keep CBE’s basic interest rates the same. It emphasized that it will keep assessing the effect of the tight monetary policy and its effect on the economy based on the data received in the coming period.
MPC also affirmed that the expected path of basic return rates depends on expected inflation rates and not current inflation rates. It emphasized that it continues to closely monitor economic developments and assess the risks around inflation expectations.
