The Central Bank of Egypt (CBE) confirmed that its Monetary Policy Committee (MPC) will continue to assess the impact of the restrictive monetary policy that has been applied, specifically raising interest rates by 1,000 basis points since March 2022 and raising the mandatory reserve requirement ratio by 4% in September 2022, on inflation.
The MPC decided last week to maintain the basic interest rates at the CBE unchanged at 18.25% for deposits, 19.25% for lending, and 18.75% for the credit and discount rate and the price of the main operation at CBE, which is the level that those prices reached on March 30 after being raised 2 % lump sum.
The CBE stated that global commodity price expectations have declined compared to the expectations presented to the MPC at its previous meeting. The severity of global inflationary pressures has decreased as a result of several factors, including the restriction of MPC by many banks, the decline in global oil prices, and the decline in the severity of bottlenecks in the global supply chains. At the same time, the expectations of the growth rates of the global economy have stabilized, and the fluctuations in the financial conditions of advanced economies have receded, compared to what was presented to the MPC at its previous meeting.
“On the local level, the growth rate of real economic activity recorded 3.9% during the fourth quarter of 2022, compared to a growth rate of 4.4% during the third quarter of the same year. Thus, the first half of the fiscal year 2022/2023 recorded a growth rate of 4.2%, and detailed data for the third quarter of 2022 show that the growth in real GDP was driven by the economic activity of the private sector, especially the sectors of tourism, agriculture, wholesale and retail trade, and in addition to that Most of the preliminary indicators point to a slowdown in the growth rate of the gross domestic product during the first quarter of 2023,” said CBE.
The CBE said that the annual rate of general urban inflation slowed to 30.6% in April 2023 compared to a rate of 32.7% in March 2023, marking the first decline since June 2022. The annual rate of core inflation slowed for the second month in a row, recording 38.6% in April 2023, and this is after an upward pace that has continued since mid-2021.
The CBE attributed this slowdown in inflation rates mainly to the positive impact of the base period, as well as the easing of the impact of supply shocks (such as disruptions in local supply chains and their impact on basic food commodity prices), in addition to the repercussions of developments in the exchange rate of the Egyptian pound on inflation rates.
According to the CBE, the recent developments in the domestic liquidity growth rate were consistent with initial indicators of a slowdown in the GDP growth rate, as the domestic liquidity growth rate decreased in March 2023. It pointed out that the GDP growth rate is expected to slow down during the fiscal year 2022/2023 compared to the previous fiscal year, provided that it recovers thereafter.
With regard to the labor market, the CBE stated that the unemployment rate recorded 7.2% during the fourth quarter of 2022, compared to a rate of 7.4% during the third quarter of the same year, mainly due to the increase in the number of workers.
According to the CBE, the current indicators show that expectations are largely consistent with the data presented to MPC during its previous meeting.
The CBE stressed that the path of basic interest rates depends on expected inflation rates not the prevailing inflation rates, and that maintaining restrictive monetary conditions is a prerequisite for achieving the target inflation rates of 7% (± 2%) on average during the fourth quarter of 2024 and 5% (± 2%) on average. During the fourth quarter of 2026.
It indicated that MPC will closely follow the risks surrounding inflation that may result from supply chain disruptions as well as geopolitical tensions and other factors, and will follow all economic developments, and will not hesitate to adjust its policy in order to achieve the goal of price stability.