Egypt's central bank keeps interest rates unchanged for 3rd meeting in row

CAIRO - 25 June 2020: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided Thursday, June 25, to keep interest rates unchanged for the third meeting in row.

The overnight deposit rate, overnight lending rate, and the rate of the main operation were kept 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 clarified in a statement that annual headline urban inflation declined to 4.7 percent in May 2020 from 5.9 percent in April 2020, supported by muted inflationary pressures as well as favorable base effects where monthly headline inflation recorded zero in May 2020 compared to 1.1 percent in May 2019.

"The decline of annual headline inflation was mainly driven by lower annual food contribution, supported by favorable base effects stemming mainly from Ramadan and Eid-Al-Fitr being in May in 2019 compared to April and May in 2020, as well as lower annual non-food contribution by a lesser extent as the monthly increases in non-food items were weaker compared to previous year," it added.

It also referred to the annual core inflation which declined to 1.5 percent in May 2020 from 2.5 percent in April 2020, the lowest rate on record.

The committee also stated that real GDP growth recorded a preliminary figure of 5 percent in 2020 Q1 as expected, down from 5.6 percent in 2019 Q4, as economic activity in the month of March 2020 was partially affected by the impact of COVID-19 and the resulting containment measures.

"Additionally, the unemployment rate recorded 9.2 percent in April 2020, compared to 7.7 and 8.0 percent in 2020 Q1 and 2019 Q4, respectively. Nevertheless, the recently announced gradual easing of lockdown measures is expected to support the recovery of economic activity," it added.

On a global scale, it said that economic activity and employment have deteriorated significantly, which was also reflected in the weakness of international oil prices, despite production cuts by major producers. Meanwhile, global financial conditions have improved despite the present uncertainty.

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.