The Central Bank of Egypt (CBE) has forecasted a notable reduction in inflation for the first quarter of 2025, owing to the cumulative effects of its monetary tightening measures and the favorable influence of the base period. The Monetary Policy Committee (MPC) noted that while inflation is currently trending downward, it still faces potential upward risks. The decision to maintain interest rates at their current levels is considered appropriate until there is a substantial and sustainable decrease in inflation.
Interest rates held steady
In its announcement following the recent decision to keep interest rates steady, the MPC highlighted a continued easing of inflationary pressures as the repercussions of prior shocks gradually diminish. In July 2024, annual headline inflation fell to 25.7 percent, with core inflation also declining to 24.4 percent, marking the fifth consecutive month of decreases. Although non-food inflation remains persistently high, the significant drop in food inflation has contributed to a decrease in overall inflation.
The lending rate has been held at 28.25 percent, while the deposit rate remains at 27.25 percent, according to a bank statement. This marks the third instance of unchanged rates since a 600 basis point (bps) increase on March 6, coinciding with a $8 billion financial support agreement with the International Monetary Fund.
Inflation decreased to 25.7 percent in July, marking the first instance of a positive real interest rate since January 2022, following a gradual decline from a peak of 38 percent in September. August’s inflation data is expected to be released on Tuesday.
Economic growth outlook
The MPC noted that domestic real GDP growth had moderated to 2.2 percent in the first quarter of 2024, a decrease from 2.3 percent in the fourth quarter of 2023. They attributed this decline to reduced public contributions to economic activity due to disruptions in Red Sea maritime trade that impacted the service sector.
Looking ahead, the MPC anticipates a gradual recovery in economic growth for the fiscal year that commenced on July 1 and expects inflation to significantly decline in the first quarter of 2025. The committee indicated that the gradual easing of food inflation, along with improved inflation expectations, suggested that inflation was currently on a downward trajectory.
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