Central Bank of Egypt Maintains Interest Rates Amid Economic Developments

The Monetary ‍Policy ⁣Committee‌ of the Central Bank ‍of Egypt has decided to maintain the overnight⁢ deposit and loan rates, as well as the central bank’s​ main operation rate, at 27.25%,⁢ 28.25%, and ⁢27.75%, ‌respectively. The credit ⁣and ⁤discount rates will also remain unchanged at 27.75%.

This decision ⁤reflects the latest developments and expectations at the global and⁤ local levels since⁢ the previous meeting of ‍the Monetary Policy Committee.⁣ The committee believes that it is appropriate ⁢to keep ⁣the central bank’s key interest rate unchanged until the rate of inflation declines significantly and sustainably.

Gross Domestic Product

At the local level, real GDP growth slowed⁤ to 2.2% in ‍the first quarter ​of 2024, from around 2.3% in the ‌fourth quarter of 2023. ⁣However,⁣ the latest preliminary indicators ​for the second quarter of ​2024 indicate that real GDP ‍growth has⁢ started ⁤to pick up.

Economic activity remains below its productive capacity, which supports the ⁤downward trajectory of inflation in the coming⁤ period. ⁢The unemployment rate fell to 6.5% in the second quarter of 2024 from 6.7% in the ‌first quarter of 2024, driven by the ​increase⁣ in the‍ number of workers in the ⁤agricultural sector.

Inflation

Inflationary pressures continued to⁤ ease with the gradual reduction of the impact‌ of ‍previous shocks. ⁢Headline annual ​inflation fell to 25.7%, and core inflation fell ⁤for the fifth consecutive month to 24.4% in July 2024.

The annual food inflation rate recorded at 29.7% in July 2024, the lowest rate in almost two years, reflecting the positive impact of the base period after the high ⁣inflation rate in 2023. ​A gradual decline in food price inflation indicates an improvement‌ in inflation expectations, ‌and⁣ inflation is currently on a downward path.

The slowdown in inflation indicates that monthly inflation ‌rates have returned to their ​normal pattern due to recent monetary tightening. Expectations indicate that inflation will record rates close to its current level until the fourth quarter of 2024, taking into account the measures taken and expected to control public ​finances.

Inflation⁤ is expected to moderate ​significantly in the ​first quarter of 2025 due to ​the incremental ⁢impact of ⁣fiscal‍ tightening policies and the positive impact of the base term. However, ‍the downward ​trajectory of inflation⁤ is still vulnerable to⁢ upside risks due ⁢to declining global ⁤oil supplies and regional geopolitics.

Global ⁣Economic Developments

Economic growth rates at the global level have remained largely stable, although lower than in ⁤the pre-corona ‌pandemic period. Monetary tightening policies in developed and emerging market economies have contributed to the decline in ‌global inflation.

Aya ⁣Zuhair, head ​of research at Zilla Capital, said that the Egyptian central bank is taking a monitoring position on the impact of the recent increase ⁢in energy and electricity prices in Egypt and its impact on the ⁢inflation rate for several ‌consecutive months.

Zuhair ⁤added that the decisions of the Monetary Policy ‌Committee will not​ be decided by the remaining⁣ meetings of the Central Bank ⁣of Egypt, but will be subject to variability,‍ and⁤ we may⁢ witness the beginning of interest rate cuts in the ⁤fourth quarter ⁣of this‍ year or early next ⁤year.