CBE’s Monetary Policy Committee ends 2023 with key interest rates unchanged

The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to keep key interest rates unchanged. This leaves the overnight deposit rate at 19.25%, the overnight lending rate at 20.25%, the rate of the main operation at 19.75% and discount rate at 19.75%. This marks the third time the committee has maintained interest rates.

The MPC highlighted the declining prices of key international commodity prices, particularly energy, easing global inflationary pressures, and forecasts of lowered inflation for emerging market economies.

The tightening of monetary policies in advanced and emerging market economies has alleviated inflationary pressures worldwide, resulting in downward revisions of inflation forecasts compared to the previous meeting. However, increasing geopolitical tensions in the region have introduced uncertainty, particularly concerning energy prices, and have implications for the inflation outlook.

Egypt’s real GDP growth has slowed, with a recorded rate of 2.9% in the second quarter of 2023, compared to 3.9% in the previous quarter. The bank attributed this marked slowdown to a contraction in gross domestic investments while net exports and consumption were the main drivers of growth in economic activity.

“Furthermore, real GDP growth is expected to slow down further during fiscal year 2023/24 before gradually picking-up thereafter. This comes in light of the impact of actual developments and the negative spillovers emanating from geopolitical tensions in the region, especially on the services sector. Meanwhile, the unemployment rate remained broadly stable at 7.1% in 2023 Q3,” the CBE statement read.

According to the CBE statement, the annual headline inflation reversed its upward trend and decelerated in both October and November 2023 due to favorable base effects; to record 34.6% in November 2023 down from 35.8% in October 2023. In addition, annual core inflation continued to decelerate for the fifth consecutive month, recording 35.9% in November 2023, down from 38.1% in October 2023.

The MPC noted that incoming data, including recent inflation trends, have generally met expectations. Given the current circumstances, the committee deemed the existing policy rates appropriate and will continue to assess the cumulative impact of previous tightening measures on the economy in a data-driven manner.

The MPC reiterated that future policy rates will be determined based on forecasted inflation rather than prevailing inflation rates, while carefully evaluating the risks surrounding the inflation outlook.