The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) has announced that it will use all available monetary policy tools to maintain restrictive monetary conditions and reach the desired inflation rates. The MPC also stated that its key interest rates depend on expected inflation rates, not current inflation rates and that it will monitor the economic developments and the risks surrounding inflation expectations.
The CBE has set its inflation targets at 7% (±2%) on average in the fourth quarter of 2024 and 5% (±2%) on average in the fourth quarter of 2026.
The MPC decided to keep the CBE’s basic interest rates unchanged at 19.25% for deposits, 20.25% for lending, and 19.75% for the credit and discount rates and the main operation of the CBE. The decision was made last Thursday, amid rising global commodity prices, especially energy prices, due to the geopolitical tensions in the region. The MPC noted that global inflationary pressures have decreased recently as a result of the tight monetary policies adopted by many major economies, as well as the positive impact of the base year. However, global inflation expectations remained above the target rates for those countries.
The MPC also pointed out that the restrictive monetary policies, along with the high degree of uncertainty caused by the recent geopolitical tensions, contributed to lower global economic growth expectations compared to the previous MPC meeting.
On the domestic front, the MPC said that the real GDP growth rate stayed at 3.9% in the first quarter of 2023, the same as the fourth quarter of 2022. The MPC explained that the economic activity in the first quarter of 2023 was driven by the positive contribution of consumption and net exports. The MPC added that net exports have been the main support for growth since the first quarter of 2022, in line with the exchange rate developments. The MPC expects the GDP growth rate to slow down in the fiscal year 2022/2023 compared to the previous fiscal year, which recorded 6.7%.
“Preliminary indicators for the third quarter of 2023 reflect general stability in economic activity compared to the second quarter of 2023,” it added.
The MPC also said that the unemployment rate decreased to 7.0% in the second quarter of 2023, compared to 7.1% in the previous quarter, mainly due to the increase in the number of workers at a faster pace than the increase in the labor force.
The MPC said that, as expected, the annual urban inflation rate continued to rise, reaching 38% in September 2023, driven by an increase in food inflation, while non-food inflation slowed down. The MPC attributed the rise in food inflation for the third month in a row to the continued increase in the prices of fresh vegetables and fruits, unlike the previous months, which were affected by the increase in the prices of basic food commodities.
According to the committee, the monthly changes for each of the previous three months ending in September 2023 reflected the impact of unfavourable climatic conditions that contributed to an increase in the amount of seasonal rise in prices of agricultural products, noting that the annual rate of core inflation witnessed a slowdown for the third month in a row to record 39.7% in September 2023, compared to 40.4% in August 2023.
The MPC explained that in light of the above, it decided to keep the CBE’s basic interest rates unchanged, stressing that it will continue to evaluate the impact of the restrictive monetary policy that was taken and its impact on the economy, according to the data to be received during the coming period.