Accordingly, the CBE’s overnight deposit rate, the overnight lending rate, and the main operation rate remained unchanged.
The Bank also maintained the discount rate at 27.25 percent, 28.25 percent, 27.75 percent, and 27.75 percent, respectively.
Local economic developments
The CBE attributed its decision to the reduction in inflation in the past few months.
“Inflationary pressures continued to ease since annual headline and core inflation peaked at 38 percent in September 2023 and 41 percent in June 2023, respectively. This decelerating trend was sustained despite the unexpected surge in February 2024 as the annual headline and core inflation declined to 32.5 percent and 31.8 percent in April 2024, respectively,” the CBE explained.
Furthermore, the Bank highlighted that the latest inflation trends since the unscheduled MPC meeting, held on 6 March, indicate that monthly trends have started to return to their usual pattern before March 2022.
Significant decline in inflation expected
The CBE predicted a reduction in inflation over 2024. In the first half of 2025, the CBE predicted a significant decline in inflation, mainly driven by tightened monetary policies and the unification of the foreign exchange market.
On 6 March, the CBE hiked key interest rates by six percent (600 bps) and allowed the local currency rate to be determined according to the forces of supply and demand.
Since then, the Egyptian pound has lost over 60 percent of its value against the US dollar, and the government succeeded in eliminating the currency parallel market. Furthermore, the same period saw the prices of a group of commodities beginning to decline.
Factors support price stability
“Moreover, sizable foreign direct investment inflows, substantial improvement in external financing conditions and their subsequent impact on foreign reserve accumulation, and the increasing domestic and foreign demand for EGP-denominated assets will contribute significantly to price stability,” the CBE explained.
The Central Bank’s target for inflation is set at seven percent (±2 percent) in the fourth quarter of 2024 and five percent (±2 percent) in the fourth quarter of 2026.
Despite the latest inflation figures indicating a slowdown path, the rates are still well beyond the CBE’s targets.
Egypt’s real GDP growth to bounce back
On a different note, the CBE projected Egypt’s real GDP growth to rise in the upcoming FY2024/2025, which starts on 1 July. It, however, expected growth to decline further in the current FY2023/2024.
“Real GDP growth recorded 2.3 percent in the fourth quarter of 2023, bringing growth in the first half of the FY2023/2024 down to 2.5 percent, compared to 4.2 percent in the corresponding period of the previous year. The slowdown in economic activity is mainly attributed to the declining contribution of the manufacturing sector,” the CBE explained.
Global and regional conditions
Globally, the CBE noted that the outlook for economic growth has remained positive despite remaining below its historical average.
It added that major central banks worldwide have maintained their monetary policy tightening although inflationary pressure has started to decline globally.
“For international commodity prices, particularly energy, the outlook remains uncertain in terms of demand and supply over the medium term, especially as supply continues to be vulnerable to shocks from geopolitical tensions,” according to the CBE.
In light of the economic developments on local and global levels and the previous MPC decisions to raise key interest rates by a cumulative eight percent (800 basis points), the Committee saw that the current monetary stance remains appropriate to contain inflation.
Moreover, the CBE affirmed that MPC will continue to assess the effect of its tightening policy on the country’s economy in a data-driven manner.
Risks ahead
According to the CBE, the escalation of current geopolitical tensions in the region, unfavourable climate conditions, domestically and globally, and higher-than-expected outturns of fiscal prudence measures are upside risks to the projected decline in inflation.
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