Egypt’s CBE maintains key interest rates

Doaa A.Moneim , Thursday 22 Sep 2022

Bucking all expectations, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) has maintained key interest rates for the third time since the initial three percent hike following the onset of the Russian-Ukrainian war.

Central Bank of Egypt (AFP)
Central Bank of Egypt (AFP)


The MPC kept the overnight deposit rate, overnight lending rate and the rate of the main operation unchanged at 11.25 percent, 12.25 percent, and 11.75 percent, respectively.

The discount rate was also kept unchanged at 11.75 percent.

On the other hand, the MPC raised the required reserve ratio to 18 percent, up from 14 percent.

“This works as a catalyst, complementing the tightening stance that the CBE is maintaining, by calibrating liquidity conditions,” the CBE said in a statement.

On the global level, the CBE said that forecasts for global economic activity have been dampened due to the impacts of the conflict between Russia and Ukraine.

It added that the global financial conditions are predicted to tighten further as major central banks continue to hike the interest rates and reduce asset purchase programmes with the aim of containing increased inflationary pressures in their respective countries.

In contrast, global commodity prices, such as international prices of oil, have slightly declined, because of weakening demand due to global recession expectations, according to the CBE.

Locally, the CBE explained that economic activity has grown by 3.2 percent in the second quarter of 2022, noting that FY2021/22 registered a growth rate of 6.6 percent, compared to 3.3 percent in the previous fiscal year.

“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, select leading indicators continue to register positive growth rates in 3Q of 2022. However, economic activity is expected to grow at a slower rate than previously projected, given the uncertainty and negative spillovers from the global scene,” the CBE further explained.

In the labour market, the CBE noted that both employment and the labour force figures edged up by similar magnitudes. Therefore, the unemployment rate remained stable at 7.2 percent in 2Q of 2022.

Egypt’s annual headline urban inflation rose to 14.6 percent in August 2022, up from 13.6 percent in July 2022, according to the CBE.

Similarly, annual core inflation – which excludes volatile food and regulated items – increased to 16.7 percent in August 2022, up from 15.6 in July 2022, said the CBE.

“The increase in annual inflation since the beginning of 2022 is emanating predominately from supply side issues, particularly international commodity prices. Despite rising annual figures, the recorded monthly rates are lower than the recent highs witnessed during March and April 2022,” the CBE noted.

“Therefore, the MPC concurs that the current key CBE rates coupled with the increased required reserve ratio are consistent with achieving price stability over the medium term,” CBE said of its decision.

The CBE also stressed that the MPC will continue to assess the impact of the previous three percent hike on inflation expectations and other macroeconomic developments over the medium term, adding that the elevated annual headline inflation rate will continue to be temporarily tolerated above the CBE’s pre-announced target of seven percent (±2 percentage points) on average through Q4 of 2022.

“The CBE remains committed to achieving low and stable levels of inflation over the medium term which is a requisite condition towards sustainable economic growth. Moving forward, the MPC will keep monitoring the global and domestic conditions for further developments and will not hesitate to utilise all available tools to achieve its price stability mandate over the medium term. The MPC reiterates that the path of future policy rates remains a function of inflation expectations rather than of prevailing inflation rates,” the CBE stressed.

They also noted that the effects of the previous policy of tightening rates by 300 basis points are still transmitting through the economy.

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