The Monetary Policy Committee of the Central Bank of Egypt (CBE) decided in its meeting on Thursday to maintain the overnight deposit and lending rates and the rate of the central bank’s main operation at 27.25%, 28.25% and 27.75% respectively. It also decided to maintain the credit and discount rate at 27.75%. This decision reflects the latest developments and expectations at the global and local levels since the previous meeting of the Monetary Policy Committee.
“On the domestic front, real GDP growth continued to decline, recording 2.2% in Q1 2024 compared to 2.3% in the previous quarter, which may mainly reflect the repercussions of geopolitical tensions and maritime trade disruptions on the services sector. Moreover, preliminary indicators for Q2 2024 show a continued slowdown in economic activity, and accordingly, FY 2024/23 is expected to witness a decline in real GDP growth compared to the previous fiscal year, before it increases again in FY 2025/24. On the other hand, labor market data indicates a slight decline in the unemployment rate to record 6.7% in Q1 2024 compared to 6.9% in Q4 2023,” the bank added in a statement.
“Inflationary pressures continued to decline, with both headline and core inflation declining for the fourth consecutive month to 27.5% and 26.6% in June 2024, respectively. Several factors contributed to the decline in inflation rates, including the gradual fading of the impact of previous shocks, the monetary tightening followed by the Central Bank, and the positive base effect. Although non-food inflation did not decline significantly, the slowdown in inflation rates in the current period is due to the decline in inflationary pressures resulting from supply shocks, which in turn contributed to the decline in food inflation from its peak of 73.6% in September 2023 to 31.9% in June 2024. Accordingly, the decline in food inflation, along with the improvement in inflation expectations, indicate that the inflation rate will continue on its downward path,” he added.
“The recent slowdown in inflation rates suggests that monthly inflation rates are approaching their usual pattern before March 2022. Inflation is expected to remain stable in 2024 around its current levels despite inflationary pressures that may result from potential fiscal consolidation measures,” he said, expecting “inflation to decline significantly in the first half of 2025 as a result of both the cumulative impact of monetary tightening and the positive base effect. However, there are still upside risks surrounding the expected downward path of inflation, including the escalation of current geopolitical tensions, unfavorable local and global weather conditions, and the possibility that fiscal consolidation measures will have an impact that exceeds expectations.”
The Committee considered that “keeping the Central Bank’s basic interest rates unchanged is appropriate at the present time to support the sustainable downward path of inflation. The MPC will continue to assess the impact of its decisions on the economy in light of the current tightening of monetary conditions and in light of the data received during the coming period,” noting that it “will continue to closely monitor economic developments and assess the risks surrounding inflation expectations.”
She stressed that “the expected path of the basic return rates depends on expected inflation rates and not prevailing inflation rates, and it will not hesitate to use all available monetary policy tools to maintain restrictive monetary conditions with the aim of reducing inflation rates sustainably and achieving price stability in the medium term.”