CAIRO - 1 February 2024: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) announced on Thursday, during its first meeting of 2024, a decision to increase key policy rates by 200 basis points.
The overnight deposit rate, overnight lending rate, and the rate of the main operation have been adjusted to 21.25 percent, 22.25 percent, and 21.75 percent, respectively. Moreover, the discount rate has been raised to 21.75 percent.
The MPC clarified that this move is aimed at ensuring a decelerating trend in inflation, with a strong commitment to assessing risks surrounding the inflation outlook for medium-term price stability. The decision is considered crucial to anchoring inflation expectations and maintaining a sufficiently restrictive policy stance.
The unemployment rate remained relatively stable at 7.1 percent in the third quarter of 2023. Annual headline and core inflation showed a deceleration trend, reaching 33.7 percent and 34.2 percent in December 2023, respectively, attributed to favorable base effects. However, recent developments, including higher-than-expected monthly dynamics and sustained inflationary pressures, prompted the MPC's decision.
The committee underscored the persistent impact of widespread inflationary pressures on pricing and consumption behaviors. Additionally, geopolitical uncertainty and maritime trade disruptions are contributing to domestic and global inflationary pressures.
Furthermore, it highlighted the global economic slowdown influenced by ongoing policy rate increases by major central banks. The effects of monetary policy tightening cycles in both advanced and emerging market economies have alleviated inflationary pressures globally.
"However, heightened geopolitical tensions and trade disruptions in the Red Sea have introduced uncertainties, especially concerning supply-chain shocks and their influence on crucial commodity prices," it noted.
On the domestic front, real GDP growth for the third quarter of 2023 stood at 2.7 percent, slightly lower than the previous quarter. Positive contributions from the trade, agriculture, and communication sectors supported economic activity, according to the MPC.
The committee added that leading indicators for the fourth quarter of 2023 suggest a general slowdown. Real GDP growth is expected to soften in the fiscal year 2023/24, with potential gradual improvement, considering ongoing regional instability and maritime trade disruptions affecting the services sector.
The MPC emphasized its readiness to employ all available tools to achieve a tight policy stance and adjust liquidity conditions as needed. The path of future policy rates will be contingent on forecasted inflation, and the committee remains vigilant in its pursuit of maintaining price stability over the medium term.
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