Egypt's Central Bank keeps interest rates unchanged during May meeting

CAIRO – 18 May 2023: The Central Bank  of Egypt (CBE) decided on Thursday to keep the interest rates unchanged.

 

The Monetary Policy Committee (MPC) decided In its meeting to keep the overnight deposit rate, overnight lending rate, and the rate of the main operation at 18.25 percent, 19.25 percent, and 18.75 percent, respectively.

 

The discount rate was also kept at 18.75 percent.

 

The Committee commented that the economic developments following the last MPC meeting were broadly in line with expectations.

 

In March,  the MPC raised the interest rates by 2 percent (200 points basis); reaching the highest level since July 2017.

 

According to May’s report, the committee announced that it continues to assess the impact of the cumulative policy rate hikes of 1000 bps since March 2022 in addition to the 400 bps increase in the required reserve ratio in September 2022, to contain inflationary pressures in a data-driven manner. 

 

The annual urban headline inflation decelerated to record 30.6 percent in April 2023, compared to 32.7 percent in March 2023, marking the first deceleration since June 2022, the report referred, adding that the annual core inflation decelerated for the second consecutive month in April 2023 to record 38.6 percent, breaking its upward trend that lasted since mid 2021. 

 

“The recent deceleration in both annual headline and core inflation is primarily attributed to favorable base effects as well as the ease of major inflationary shocks; such as the domestic supply chain disruptions that affected main core food commodities and the repercussions of the exchange rate developments,” it added.

 

According to the report, the growth of real economic activity eased to 3.9 percent in 2022 Q4 compared to 4.4 percent in 2022 Q3, indicating that growth during the first half of fiscal year 2022/23 registered 4.2 percent. 

 

It added that detailed sectoral data for 2022 Q3 show that growth was primarily driven by private sector economic activity, specifically tourism, agriculture and trade, adding that most leading indicators point towards a slowdown of real GDP growth in 2023 Q1. 

 

In line with the early signs of economic activity slowdown, broad money (M2) and its local currency components grew at a slower pace in March 2023, the report concluded.

 

Moreover, it pointed out to the expectations of the real GDP growth to slow down in fiscal year 2022/23 compared to the previous fiscal year, before recovering thereafter. Meanwhile, the unemployment rate recorded 7.2 percent in 2022 Q4, down from 7.4 percent in the preceding quarter. This was mainly attributed to an increase in employment compared to the previous quarter.

 

 

Globally,  the MPC said that forecasts for key international commodity prices have been revised downwards compared to those underlying the previous MPC meeting. Global inflationary pressures have also eased as a result of a mix of factors, most notably the monetary policy tightening on the part of major central banks, the declining energy prices, and a reduction in global supply bottlenecks. Similarly, forecasts for economic growth have broadly stabilized, while volatility in financial conditions of key advanced economies has eased compared to the previous MPC meeting.