CBE keeps interest rates unchanged to ensure price stability over medium term

Doaa A.Moneim , Thursday 18 Aug 2022

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

Egypt's Central Bank


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.

Earlier on Thursday, President Abdel-Fattah El-Sisi issued a presidential decree appointing the Chairman of the Board of Members of the United Media Services Group (UMS) Hassan Abdallah as the acting governor of the Central Bank of Egypt (CBE).

On Wednesday, President El-Sisi accepted the resignation of Amer, who chaired the CBE for seven years (2015-2022).

Price Stability

The MPC attributed its decision to achieve price stability over the medium term.

“The MPC treats the developments emanating 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 utilized to anchor inflation expectations, contain demand-side pressures and second-round effects emanating from supply shocks that may lead to deviations from inflation targets. Therefore, in accommodation of the first-round effects of supply shocks, the elevated annual headline inflation rate will be temporarily tolerated relative to the CBE’s pre-announced target of 7 percent (±2 percentage points) on average in 2022 Q4, before declining thereafter,” the MPC explained.

In terms of the labor market, the unemployment rate stabilized at 7.2 percent in 2022 Q2. The witnessed stability comes in light of both employment and the labor force figures increasing by similar magnitudes, offsetting one another.Anchor

In July 2022, annual headline urban inflation resumed its upward trend, which started in December 2021, to record 13.6 percent, that is after decelerating in June 2022 to record 13.2 percent. In addition, July’s annual core inflation – which excludes volatile food and regulated items – recorded 15.6 percent in July 2022, up from 14.6 percent during the previous month. The increase was driven by higher prices of core food, retail items and services. This can be mainly attributed to the seasonal impact of Eid Al-Adha, the repercussions of the Russo-Ukrainian conflict, as well as the indirect effects of higher prices of fuel products.

On a global level,  global economic activity has continued to slow down, affected by spillovers from the Russo-Ukrainian conflict, while increased geopolitical risk in Southeast Asia is raising uncertainty regarding the global economic outlook. Furthermore, despite edging down recently, global financial conditions have remained relatively tight as major central banks have continued to raise policy rates and reduce asset purchase programs with the aim of containing increased inflationary pressures in their respective countries. Meanwhile, global commodity prices have slightly declined after reaching their peak following the Russo-Ukrainian conflict.

Domestic economic activity is estimated to have grown by a preliminary figure of 6.2 percent in FY2021/2022, compared to 3.3 percent in the previous fiscal year, the CBE said.

“This reflects stronger than previously expected growth. Latest available data for the first nine months of the fiscal year shows that GDP growth was mainly driven by the private sector, particularly non-petroleum manufacturing, tourism, and trade. Meanwhile, public sector activity was supported by natural gas extractions, Suez Canal and the general government. Moreover, most leading indicators remained in positive territory in 2022 Q2,” the CBE explained.

The CBE expects economic activity growth to occur at a slower pace but will be supported by the government’s planned structural reforms, given the negative spillovers emanating from the Russo-Ukrainian conflict, among other factors.

The MPC said it will continue to assess their impact on inflation expectations and other macroeconomic developments over the medium term.

“Achieving low and stable inflation over the medium term is a requisite condition to achieve sustainable economic growth,” MPC asserted.

This is the fifth meeting to be held since the beginning of 2022 and the fourth since the onset of the war in Ukraine in March

The meeting comes under the chairmanship of Hassan Abdallah, who was appointed on Thursday as the CBE’s acting governor, succeeding Tarek Amer.

This is the second time for the CBE to keep the interest rates since the outbreak of the Russian-Ukrainian war.


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