The MPC maintained the overnight deposit rate, overnight lending rate and the rate of the main operation unchanged at 18.25 percent, 19.25 percent and 18.75 percent, respectively.

The discount rate was also kept unchanged at 18.75 percent.

The CBE attributed the decision to recent readings on inflation and real GDP growth.

“Domestically, growth of real economic activity moderated to 3.9 percent in Q4 2022 compared to 4.4 percent in Q3 2022, indicating that growth during the first half of the fiscal year 2022/23 registered 4.2 percent. Detailed figures for Q4 2022 show growth was mainly driven by the positive contribution of net exports, in line with exchange rate developments,” the CBE explained.

Additionally, the real GDP growth continues to be driven by private sector economic activity, supported by the positive contributions of trade, agriculture and construction, according to the CBE.

That said, the CBE projected real GDP growth to finish lower in the current FY2022/2023 compared to the previous fiscal year, before recovering going forward.

The CBE also said that the unemployment rate slightly declined to 7.1 percent in the first quarter of 2023, down from 7.2 percent in the previous quarter.

Amid rising inflation

The CBE decision to maintain interest rates comes despite the rise in the inflation rate readings seen in May.

Egypt’s annual headline inflation rose in May, hitting 33.7 percent up from 31.5 percent in April, resuming an upward trend that started in mid-2022, according to a report released by the Central Agency for Public Mobilisation and Statistics (CAPMAS) earlier in June.

Meanwhile, the country’s annual core inflation reached 40.3 percent in May, up from 38.6 percent in April, reaching its highest levels since 2011.

“Incoming data since the May MPC meeting, including the recent inflation outturns, came broadly in line with expectations,” CBE stressed.

Egypt is currently engaged in a four-year loan programme with the International Monetary Fund (IMF), under which Egypt is committed to applying a free regime for both exchange rates and interest rates.

Egypt has received the first tranche of the loan worth $347 million in December 2022.

However, the first IMF review of the loan, previously slated for March 2023, has not been completed awaiting assessment of the performance of the government in implementing the terms of the deal with the fund, including the adoption of a flexible exchange regime.

Earlier this week, President Abdel-Fattah El-Sisi stressed in public comments that a further devaluation of the Egyptian pound could not be applied in the time being as soaring inflation rates continue to weigh on citizens heavily.

Since March 2022, the Egyptian pound lost 50 percent of its purchasing power after the CBE depreciated its price on three different occasions as part of its economic reform program.

In tandem, the CBE also hiked the key interest rates by a total of 10 percent in the same time period to rein in inflation.

Global indicators

The CBE said in its statement on Thursday that key international commodity prices are projected to continue their recent downward trend, suggesting an easing in global inflationary pressures on the Egyptian economy in the coming period.

“While monetary policy tightening and lower energy prices have contributed to easing global inflationary pressures, inflation rates remain above their respective target levels in key global economies. Financial conditions in key advanced economies have also tightened compared to the May MPC meeting, supporting the slight decline in forecasts for global economic growth,” the CBE noted.

It asserted that the MPC will continue to monitor the upcoming developments of the economic outlook, stressing that it will not hesitate to utilize all its tools for the sake of ensuring a tight monetary stance and reaching the CBE’s inflation targets set at seven percent (± 2 percent) on average by the fourth quarter of 2024 and five percent (± 2 percent) on average by the same quarter of 2026.