Egypt’s Central Bank Keeps Key Interest Rates Unchanged
The Central Bank of Egypt (CBE) announced on Thursday that it will maintain its key overnight interest rates. The bank’s Monetary Policy Committee (MPC) decided to keep the lending rate at 19.25 percent and the deposit rate at 18.25 percent. This decision was expected, as none of the 17 analysts polled by Reuters had predicted a change.
The MPC statement noted that leading indicators for the first quarter of 2023 suggest a slowdown in real GDP growth. However, the committee expects economic growth to recover in the fiscal year that begins next week. The MPC also stated that international commodity prices are likely to continue declining.
Inflation in Egypt has been a concern, with headline inflation reaching an annual 32.7 percent in May, just short of a record high. Month-on-month, inflation jumped to 2.7 percent from 1.7 percent in April. The MPC acknowledged this issue but did not make any changes to interest rates.
President Abdel-Fattah El-Sisi’s recent comments on the currency have dampened expectations of a rate increase. Despite the pound trading at about 38 to the dollar on the black market compared with the official rate of 30.9 pounds, El-Sisi appeared to rule out any imminent devaluation of the currency.
Since Russia invaded Ukraine in February last year, causing investors to withdraw billions of dollars from the Egyptian treasury market, the central bank has raised rates by a cumulative 1,000 basis points and allowed the currency to fall by half.
Egypt’s Economic Growth Expected to Recover
The MPC’s decision to keep interest rates unchanged comes as Egypt’s economy is expected to recover in the upcoming fiscal year. The country’s economic growth eased to 3.9 percent in the fourth quarter of 2022 from 4.4 percent in the third quarter, according to the MPC.
However, the committee expects economic growth to slow down in fiscal year 2022/23 compared to the previous fiscal year before recovering thereafter. The MPC statement noted that leading indicators for the first quarter of 2023 suggest a slowdown in real GDP growth.
Despite this, the MPC remains optimistic about the future of Egypt’s economy. The committee stated that international commodity prices are likely to continue declining, which could help boost economic growth.
Inflation Remains a Concern in Egypt
Inflation has been a significant issue in Egypt, with headline inflation reaching an annual 32.7 percent in May. Month-on-month, inflation jumped to 2.7 percent from 1.7 percent in April.
The MPC acknowledged this issue but did not make any changes to interest rates. The committee expects inflation to remain high in the short term but to gradually decline over the medium term.
President Abdel-Fattah El-Sisi’s recent comments on the currency have also impacted expectations of inflation. Despite the pound trading at about 38 to the dollar on the black market compared with the official rate of 30.9 pounds, El-Sisi appeared to rule out any imminent devaluation of the currency.
Conclusion
The Central Bank of Egypt’s decision to keep interest rates unchanged comes as the country’s economy is expected to recover in the upcoming fiscal year. Despite concerns about inflation, the MPC remains optimistic about the future of Egypt’s economy.
The committee expects economic growth to slow down in fiscal year 2022/23 compared to the previous fiscal year before recovering thereafter. However, the MPC believes that international commodity prices are likely to continue declining, which could help boost economic growth.
President Abdel-Fattah El-Sisi’s recent comments on the currency have impacted expectations of inflation and interest rates. Despite the pound trading at about 38 to the dollar on the black market compared with the official rate of 30.9 pounds, El-Sisi appeared to rule out any imminent devaluation of the currency.