CBE maintains interest rates for first time since onset of Ukraine war

Doaa A.Moneim , Thursday 23 Jun 2022

The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) kept the current key interest rates unchanged in its meeting held on Thursday.

The Central Bank of Egypt (Photo: Al-Ahram)


Accordingly, the CBE’s overnight deposit rate, overnight lending rate, and the rate of the main operation remain unchanged at 11.25 percent, 12.25 percent, and 11.75 percent, respectively.

The discount rate was also kept unchanged at 11.75 percent.

The CBE said that global economic activity has decelerated due to the ongoing war in Ukraine. 

“Trade sanctions imposed on Russia and corresponding supply-chain bottlenecks have elevated global commodity prices, such as international prices for oil and wheat,” CBE explained.

Moreover, global financial conditions have tightened as major central banks have continued to tighten policy rates and reduce asset purchase programs with the objective of containing the increased inflationary wave in their respective countries, according to the CBE.

On the local level, the CBE said that economic activity continued to grow in the first quarter (Q1) of 2022, albeit at a slow pace, recording a preliminary growth of 5.4 percent, down from 8.3 percent in Q4 of 2021.

“Detailed sectoral growth data for Q4 of 2021 shows that economic activity was supported by the robust positive contribution of tourism, non-petroleum manufacturing and trade,” the CBE said.

In Q2 of 2022, the figures indicate normalised economic activity, as the strong positive base effect diminishes, the CBE said.

Going forward, the CBE expects the country’s economic activity to expand at a slower than projected pace, mainly because of the unfavourable spill-overs from the Russian-Ukrainian conflict. 

The CBE also said that the unemployment rate declined in Q1 of 2022, recording 7.2 percent due to the increase in employment figures, which more than offset the increase in the labour force, according to the CBE.

“Annual headline urban inflation continued to increase, but at a slower pace, to record 13.5 percent in May 2022, from 13.1 percent in the previous month. In addition, annual core inflation – which excludes volatile food and regulated items – also witnessed a slower pace of increase for the second consecutive month. It continued its upward trend to record 13.3 percent in May 2022 from 11.9 percent in the previous month,” the CBE said.

It added that the May 2022 inflation reading continued to be affected by the depreciation of the Egyptian pound, as well as by the implications of the war in Ukraine on commodities.

“The MPC treats the developments stemming from the Russo-Ukrainian conflict to be among the exogenous shocks that are outside the scope of monetary policy and yet may lead to transitory deviations from pre-announced target rates. Monetary policy tools are utilised to anchor inflation expectations, contain demand-side pressures and second-round effects emanating from supply shocks that may lead to deviations from inflation targets,” the CBE said.

Therefore, in accommodation of the first-round effects of supply shocks, the elevated annual headline inflation rate will be temporarily tolerated, the MPC said, adding that it will continue to assess the impact of raising the interest rates in its last two meetings (300 bps, or 3 percent) on inflation in Egypt and other macroeconomic developments over the medium term.

“Achieving low and stable inflation over the medium term is a requisite condition to achieve high and sustainable growth rates, as well as supporting real incomes,” it further added.

The MPC stressed that future policy rates will remain a function of inflation projections, rather than of prevailing inflation rates, and that it will do its best to keep the price stability in light of the inflation readings.

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