The MPC took its decision in its meeting held on Thursday, the first in the current FY2024/2025 and the fourth in 2024.

Inflation in decline

The committee attributed its decision to the decline of the inflationary pressures.

Egypt’s annual headline inflation rate kept its downward path in June, declining to 27.5 percent, according to the latest readings published by the Central Agency for Public Mobilisation and Statistics (CAPMAS). Similarly, Egypt’s core inflation rate maintained its downturn trajectory in June, shrinking to 26.6 percent, according to the CBE's calculations.

“Inflation rates benefited from the combined effect of a gradual dissipation of previous shocks, supporting a return to normal dynamics, the recent tightening cycle; and a favourable base effect from the strong inflationary episodes in 2023,” the CBE explained.

It also indicated that despite persistent non-food inflation, the current decline in inflation was driven by improvements in market dynamics, reflected in the significant reduction in annual food inflation to 31.9 percent in June 2024 from a peak of 73.6 percent in September 2023.

In this respect, the CBE noted that the gradual unwinding of food inflation and the improvement of inflation expectations suggest that inflation is on a sustained downward course.  

It explained that "the recent dampening of inflation dynamics generally suggests a normalization to their usual monthly pattern before March 2022. While suggesting pressures could be expected from possible fiscal consolidation measures, the CBE stated that, according to forecasts, inflation should remain around its current levels in 2024.

Inflation to significantly down

The CBE projected the country’s inflation to decline significantly in the first half of 2025 due to the cumulative impact of a tightened monetary policy and favourable base effects.

The Central Bank of Egypt started its tightened monetary policy following the eruption of the Ukrainian war in March 2022 to contain the elevated inflation, which remains in the double-digit zone.

The CBE warned, however, that the upside risks to the forecasted disinflation path remain, including an escalation of current geopolitical tensions, unfavourable climate conditions domestically and globally, and higher-than-anticipated fiscal measures.

Real GDP growth moderates over regional tensions

The CBE said Egypt’s real GDP growth slowed to 2.2 percent in the first quarter of 2024, down from 2.3 percent a quarter earlier, fuelled by the negative repercussions of geopolitical tensions and maritime trade disruptions to the services sector.

It added that leading indicators for the second quarter of 2024 suggest that economic activity remains subdued.

In light of these indices, the CBE expected Egypt’s real GDP growth to decelerate in FY2023/2024 -- which ended on 30 June -- compared to the previous fiscal, before rebounding in the current FY 2024/2025.

On Tuesday, the International Monetary Fund (IMF) revised its projections for Egypt’s real GDP growth down in FY2023/2024 and FY2024/2025 by 0.3 percent to 2.7 percent and 4.1 percent, respectively, over the implications of the regional and global tensions.

Under the IMF’s ongoing $8 billion loan deal with Egypt, Egypt is committed to adopting flexible regimes for interest and exchange rates.

Moreover, the country’s labour market data indicates that the unemployment rate has slightly declined to 6.7 percent in the fourth quarter of 2024, down from 6.9 percent in the same quarter of 2023.

On the global level, the CBE said the economic growth outlook remains positive albeit below its historical level. It noted that tightened monetary policy cycles in advanced and emerging market economies have contributed to a decline in inflation worldwide, with select central banks cutting interest rates after inflation approached its targeted levels.

However, the CBE expected key central banks worldwide to uphold a tight monetary policy for an extended period due to uncertainty surrounding the inflation path and its upside risks.

Meanwhile, it indicated that the prices of key international commodities, chiefly energy, have recently decreased, mainly due to the effect of tighter monetary policy on global demand.

Commodity prices remain, however, vulnerable to supply shocks from ongoing geopolitical tensions, according to the CBE.

In light of the economic developments on the local and global levels, the Central Bank of Egypt said the current monetary stance in Egypt is appropriate to support the sustained moderation of inflation, stressing that it will continue to assess its reflection on the local economy in a data-driven manner.

In addition, the CBE stated that the path of future policy rates remains a function of inflation expectations rather than prevailing rates and that the bank will not hesitate to utilize all tools at its disposal to ensure that the policy stance is set at sufficiently restrictive levels that allow for a sustained decline in underlying inflation and safeguard price stability over the medium term.