In its first meeting in 2023, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to maintain unchanged the current interest rates.
Accordingly, the overnight deposit rate, overnight lending rate, and the rate of the main operation were kept unchanged at 16.25 percent, 17.25 percent, and 16.75 percent, respectively.
The discount rate was also kept unchanged at 16.75 percent.
The MPC said that its decision aims to leave room for assessing the impact of the previously implemented front-loaded tightening policies. It reiterated that the path of future policy rates remains a function of forecasted inflation rather than prevailing inflation rates.
The MPC added that maintaining tight monetary conditions proves to be a necessary condition to achieve the CBE’s upcoming inflation targets and price stability over the medium term.
CBE hiked the key interest rates by a total of eight percent (800 bps) over 2022 as a key tool to tame the accelerated inflation.
Egypt’s annual headline inflation hit over 24 percent in December – according to the CBE's latest readings – the highest in almost five years. January readings will be released by the CBE next week.
CBE also noted that Egypt’s real GDP growth rose slightly in the third quarter (3Q) of 2022, recording 4.4 percent compared to 3.3 percent in the previous quarter of the year, primarily driven by the improvement in tourism, agriculture and trade sectors.
Moreover, most leading indicators continued to attain positive growth rates in 4Q of 2022 but at a slower pace, according to CBE.
Going forward, CBE projected Egypt’s real GDP growth to moderate during current FY2022/2023, which ends by the end of June, compared to the previous fiscal year, before recovering thereafter.
On unemployment rate, CBE said that it increased in 3Q of 2022 to 7.4 percent, slightly up from the 7.2 percent recorded in the previous quarter.
Meanwhile, annual urban headline inflation continued to accelerate, recording 21.3 percent in December 2022. In addition, the annual core inflation maintained its upward trend, registering 24.4 percent in the same month, said CBE.
Accordingly, as per CBE’s calculations, the average annual headline inflation recorded 18.7 percent during 4Q of 2022, surpassing the limit CBE set at seven percent (±2 percent).
“Such developments reflect the impact of the Russia-Ukraine conflict and supply bottlenecks globally on the elevated levels of international commodity prices, despite having eased recently, as well as the exchange rate fluctuations since March 2022 and other demand side pressures”, CBE pointed out.
It also noted that the MPC expects that demand side pressures on inflation continue, as evidenced by developments in real economic activity relative to potential capacity and the impact of recent exchange rate fluctuations, both of which are consistent with higher broad money growth outturns.
CBE explained that MPC delivered front loaded policy rate hikes of 800 bps in 2022, of which 500 bps were applied in 4Q alone for the sake of countering the inflationary pressures, in addition to raising the required reserve ratio by 400 bps in September 2022.
The US Federal Reserve, the European Central Bank and the Central Bank of England hiked interest rates in February by 0.25 percent, 0.50 percent and 0.50 percent, respectively.
