Egypt's central bank keeps interest rates unchanged during May

CAIRO – 14 May 2020: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided Thursday, May 14, to keep overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 9.25 percent, 10.25 percent, and 9.75 percent, respectively.

The discount rate was also kept unchanged at 9.75 percent, according to MPC’s decision.

MPC attributed the decision to the inflation rate which rose due to Ramadan season, and the stabilization of real gross domestic product.

MPC clarified that annual headline urban inflation increased to 5.9 percent in April 2020 from 5.1 percent in March 2020 due to a combination of unfavorable base effect stemming from muted price increases in April 2019 as well as higher prices increases in April 2020 which is broadly attributed to the impact of the outbreak of COVID-19 as well as a stronger seasonal factor due to Ramadan.

“Annual headline inflation in April 2020 was driven by higher annual food contribution, mainly core food items, which more than offset lower annual contribution of non-food items. Accordingly, annual core inflation increased to 2.5 percent in April 2020 from 1.9 percent in March 2020,” it stated.

It added that real GDP growth continued to stabilize around 5.6 percent in 2019 Q4, with the recovery in public domestic demand offsetting the moderation in private domestic demand, and the pickup in consumption offsetting the slowdown in investments. “Meanwhile, leading indicators showed broad improvement on average in January and February 2020, before reflecting a slowdown in economic activity in March and April 2020. Nevertheless, the diversity of the economy provides some cushion given the resilience of some sectors.”

MPC referred to the global manner, saying that economic activity and employment have deteriorated significantly, which weighed on the outlook with risks mainly tilted to the downside. This was also reflected in the weakness of international oil prices, despite production cuts by major producers.

As an exceptional decision, the MPC decided, on Mar. 16, to cut the overnight deposit rate, the overnight lending rate, and the rate of the main operation in an emergency meeting by 3 percent or 300 basis points.

This decision comes as a part of actions and measure took by CBE to curb the effect of the virus outbreak; extending the loan maturities for the major companies 6 months without any fines.

According to the statement, the MPC closely monitors all economic developments and will not hesitate to utilize all available tools to support the recovery of economic activity, within its price stability mandate.