Egypt's central bank to determine key interest rates amid economic uncertainty

CAIRO - 1 February 2024: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) is set to decide today, Thursday, on the fate of key interest rates at the central bank. These rates are considered the most crucial indicators for the short-term interest direction of the Egyptian pound. The decision comes during its first regular meeting of the current year.

 

This committee meeting occurs amidst considerable uncertainty about the decision it might make, given the severe turmoil in the Egyptian market, both in terms of the exchange market and commodity prices. This is despite the observed slowdown in inflation in recent months.

 

During its last meetings in 2023, held just before the end of December, the committee decided to maintain the key interest rates at the central bank for the third consecutive time: 19.25 percent for deposits, 20.25 percent for lending, and 19.75 percent for credit, discount rates, and the main operation of the central bank. This decision followed an 11 percent increase in 2022 and 2023.

 

The committee is scheduled to hold eight meetings during 2024 to discuss the fate of the pound's interest rate. The first meeting is on Thursday, February 1, followed by subsequent meetings on March 28, May 23, July 18, September 5, October 17, November 21, and December 26.

 

In its previous meetings, the committee reiterated that the trajectory of the central bank's key interest rates depends on expected inflation rates rather than prevailing inflation rates.

 

The Central Bank of Egypt revealed an annual core inflation rate of 34.2 percent in December 2023, compared to 35.9 percent in November 2023.

 

It stated that the headline Consumer Price Index (CPI) recorded a monthly average increase of 1.3 percent in December 2023, compared to 2.6 percent in December 2022 and 1 percent in November 2023.

 

The Central Agency for Public Mobilization and Statistics also reported a continuing decline in the annual inflation rate in Egyptian cities for the third consecutive month, reaching 33.7 percent by the end of December 2023, compared to 34.6 percent in November.

 

According to the agency, the overall CPI for the Republic reached 194.2 points in December 2023, registering an annual inflation rate of 35.2 percent, compared to 36.4 percent in November 2023.

 

Moreover, the monthly inflation rate for the entire Republic was 1.2 percent in December 2023, compared to 0.9 percent in November 2023.

 

The market eagerly anticipates the release of the latest inflation figures, both general and core, on February 10, the pre-set date for announcing monthly inflation numbers.

 

According to a document prepared by the Information and Decision Support Center (IDSC) at the Cabinet, the Central Bank of Egypt's monetary policy will focus on achieving price stability and reducing inflation rates to targeted levels. This is in line with the inflation targeting policy, aiming to reach around 7 percent ± 2 percent on average during the fourth quarter of 2024 and further reducing it to 5 percent ± 2 percent on average during the fourth quarter of 2026. The target is to maintain it at low levels not exceeding 5 percent by 2030.

 

The document expects inflationary pressures facing the Egyptian economy to begin easing starting in 2024, with the inflation rate averaging around 9.2 percent during the period from 2024 to 2028. It emphasizes the need to focus on controlling the expansion of the money supply and linking it to the real GDP growth rates beyond the economic growth rates to contain inflationary pressures driven by an increase in money issuance beyond the rates of economic growth.

 

The Central Bank of Egypt aims to reduce inflation to 7 percent ± 2 percent on average during the fourth quarter of 2024 and 5 percent ± 2 percent on average during the fourth quarter of 2026.

 

In its last meeting during 2023, the Monetary Policy Committee stated that it would not hesitate to use all available monetary policy tools to maintain restrictive monetary conditions and reduce monthly inflation rates. This is to guide the future path of annual inflation rates towards the announced targets of the Central Bank, with the aim of achieving price stability in the medium term.