Egypt’s Central Bank maintains interest rates for the last time in 2021

Doaa A.Moneim , Thursday 16 Dec 2021

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) on Thursday kept the overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 8.25 percent, 9.25 percent and 8.75 percent, respectively.

File Photo: Central Bank of Egypt s headquarters. REUTERS

It also maintained the discount rate at 8.75 percent.

This came during the MPC’s last meeting in 2021 to review the key interest rates.

With such an action, the CBE has kept the interest rates unchanged over 2021 since it cut them by 0.5 percent (50 pbs) in December 2020.

The CBE attributed the action to the recent inflation readings; annual headline urban inflation declined in November to 5.6 percent, down from 6.3 percent in October and 6.6 percent in September.

It said that such a decline was the result of favorable base effects in November 2021 stemming from the transitory supply shock witnessed in tomato prices during November 2020. 

“Hence, the deceleration in November 2021 was driven by the lower annual contribution of food items, which more than offset the higher annual contribution of non-food items,” the CBE explained.

Moreover, annual food inflation declined in November 2021 for the first time since April 2021 to 8.1 percent, down from 11.6 percent in October, due to the decline in the annual contribution of volatile food items. This happened despite higher annual contribution of core and regulated food items, according to the CBE.

On the other hand, annual non-food inflation increased to 4.5 percent in November from 4.0 percent in October 2021, mainly reflecting higher annual contribution of rental values as well as higher prices of cafes and restaurants, said the CBE.

Meanwhile, annual core inflation continued to increase, for the third month in a row, to record 5.8 percent in November up from 5.2 percent in October and 4.8 percent in September partially affected by unfavorable base effects, the CBE elaborated.

The inflation readings are below the CBE’s target of 7 percent (+/- 2 percent) through the end of 2022.

On the real sector level, the CBE said that real Egypt’s GDP growth increased in the third quarter of 2021 to reach 9.8 percent in 2021, up from 7.7 percent in the second quarter of the same year.

“This jump reflects the sustained pick-up of domestic economic activity, as well as the partial impact of a positive base effect,” the CBE expounded.

Additionally, leading indicators point towards a continued expansion across most economic sectors, it added.

Meanwhile, the CBE said that country’s unemployment rate stabilised at 7.5 percent in 3Q of 2021, compared to 7.3 percent during the preceding quarter.

For the near outlook, the CBE expected domestic economic activity to be mainly driven by domestic demand, and in specific, gross domestic investments.

It also predicted Egypt’s real GDP growth to continue being partially impacted by a positive base effect up until end of 2021.

On a global level, the CBE noted that economic activity continues to recover from the pandemic, but has shown some signs of slowdown due to global supply chain disruptions.

Moreover, prospects of global economic recovery remain contingent on the efficacy of vaccines and the ability of countries to contain the spread of the virus, in light of the emergence of newer variants, according to the CBE.

It also added that global financial conditions are projected to remain accommodative and supportive of economic activity over the medium-term. International prices for oil have increased at a slower pace, driven by both supply and demand factors. 

In the meantime, international prices for select mineral commodities have begun to decline, according to CBE.

The MPC said that it closely monitors all economic developments and will not hesitate to utilise all available tools to support the recovery of economic activity within its price stability mandate.

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