Egypt's Central bank keeps key interest rates unchanged in its last meeting for 2023

Doaa A.Moneim , Thursday 21 Dec 2023

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the current key interest rates unchanged in its final meeting for 2023 held on Thursday.

The Central Bank of Egypt (CBE) headquarters, Cairo, Egypt. AP
The Central Bank of Egypt (CBE) headquarters, Cairo, Egypt. AP

Accordingly, the current overnight deposit rate, the overnight lending rate, and the main operation rate remained unchanged at 19.25 percent, 20.25 percent, and 19.75 percent, respectively.

The discount rate was also kept unchanged at 19.75 percent.

The CBE has thus maintained the key interest rates fivefold, with two hikes totalling three percent (300 bps) over 2023.

The Central Bank attributed the MPC’s decision to the latest reading of the annual headline and core inflations for November.

“As expected, the annual headline inflation reversed its upward trend and decelerated in October and November 2023 due to favorable base effects to record 34.6 percent in November 2023, down from 35.8 percent in October 2023. In addition, annual core inflation continued to decelerate for the fifth consecutive month, recording 35.9 percent in November 2023, down from 38.1 percent in October 2023. Monthly headline dynamics came broadly as expected, reflecting a seasonal decline in prices of agricultural products and higher regulated prices in November 2023,” the CBE explained in a statement published on its website.

Moreover, Egypt’s real GDP growth decelerated to 2.9 percent in the second quarter of 2023, compared to 3.9 percent in the previous quarter. In FY 2022/2023, real GDP growth decelerated by 3.8 percent, compared to 6.7 percent the previous year, according to the CBE.

The Egyptian government has revised the country’s real GDP growth forecast for the current FY2023/2024, which ends at the end of June 2024, to 3.5 percent from an earlier forecast of 4.2 percent.

The CBE attributed this pullback to the contraction in gross domestic investments, stressing that net exports and consumption were the main drivers of the country’s economic growth.

Moreover, the CBE projected the country’s real GDP growth to slow down further during FY 2023/2024, which ends at the end of June, before gradually bouncing back.

“This comes in light of the impact of actual developments and the negative spillovers emanating from geopolitical tensions in the region, especially in the services sector. Meanwhile, the unemployment rate remained broadly stable at 7.1 percent in the third quarter of 2023”, the CBE further noted.

On a global level, the CBE stated that given the continued effect of policy rate increases by key central banks on demand, world economic growth has slowed down -- its outlook revised downwards -- compared to the trend seen during November.

In addition, the international price of commodities, chiefly energy, has decreased due to reduced speculation over oil supply shortages and dampening global demand.

The CBE said the continued impact of monetary policy tightening cycles in advanced and emerging market economies has cooled inflationary pressures globally, and the outlook for inflation in these economies has been revised downwards compared to the situation in November.

The CBE stressed, however, that the escalating geopolitical tensions in the Middle East have raised uncertainty surrounding the inflation outlook, particularly for energy prices.

“In light of the above, the MPC decided that current policy rates remain appropriate at this juncture and will continue assessing the cumulative impact,” the CBE noted.

The CBE also reiterated that the path of future policy rates remains a function of forecasted inflation rather than prevailing inflation rates, stressing that it will continue to assess the balance of risks surrounding inflation. 

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