The Central Bank of Egypt (CBE) has said that the path of global economic recovery depends on the effectiveness, availability, and speed of distributing vaccines for the novel coronavirus (COVID-19).
This will potentially have the added bonus of reducing the prevailing state of uncertainty worldwide in the medium term.
A statement released by the Monetary Policy Committee (MPC), on Thursday evening, revealed the CBE’s indication that at the global level, economic activity is still weak, despite the easing of global financial conditions.
This is due to the negative impacts of both the second wave of the COVID-19 pandemic, and the precautionary measures affecting the global economy. At the same time, global oil prices continued to rise, driven by developments on the supply side.
The MPC decided, in its meeting on Thursday, to keep the basic interest rates at the CBE at 8.25% for deposits, 9.25% for lending, and 8.75% for credit and discounts and the CBE’s main operation rate.
“The annual rate of general urban inflation decreased to 5.4% in December 2020 from 5.7% in November 2020, mainly driven by the decline in fresh vegetable prices,” the MPC added in the statement, “This is due to both the seasonal pattern of fresh vegetables prices, in addition to the partial disappearance of the supply shock in tomato prices in November 2020.”
The MPC also said that the annual rate of core inflation decreased to 3.8% in December 2020, compared to 4.0% in November 2020.
It noted that the annual general inflation rate in urban areas recorded an average rate of 5.2% during the fourth quarter (Q4) of 2020, which is less than the minimum target range of 6% announced in 2018.
The MPC said that this deviation from the target range is due to the impact of the pandemic, and the accompanying precautionary measures on economic activity.
The committee indicated that the Egyptian government has taken several measures to avoid any shortage resulting from the supply of goods in the market, which also contributed to reducing inflation rates.
“In spite of the above, and looking at the balance of risks, the CBE has proactively taken several measures in order to support economic activity, in line with achieving the objective of price stability in the medium term,” it said.
The MPC also said that the preliminary data indicated that the real growth rate of gross domestic product (GDP) recorded 0.7% during Q3 of 2020, compared to negative 1.7% during Q2 of the same year.
Some preliminary indicators in terms of demand continued to recover during Q4 of 2020. The unemployment rate decreased to 7.3% during Q3 of 2020, compared to 9.6% during Q2 of the same year.
With this in mind, the committee acknowledges that the level of basic return rates at the CBE is currently proper and consistent with the target inflation rate of 7% (±2%), on average, during Q4 of 2020. It also acknowledges price stability in the medium term.
It stressed that it will closely watch all economic developments and risk balances and will not hesitate to use all its tools to support the recovery of economic activity, provided that inflationary pressures are contained.