Egypt’s central bank decided to keep its key overnight interest rates unchanged, citing the impact of uncertainty surrounding U.S. protectionism and geopolitics on inflation. The central bank decided to maintain the overnight deposit rate, overnight lending rate and the rate of the main operation at 27.25 percent, 28.25 percent, and 27.75 percent, respectively. The committee also decided to maintain the discount rate at 27.75 percent.
“Upside risks surrounding the inflation outlook have increased compared to the previous MPC meeting. This is due to the increasingly uncertain global and regional outlook regarding the impact of U.S. protectionist trade policies and geopolitical tensions,” said the central bank in a statement.
Egypt’s economic activity grows
Domestically, preliminary indicators for Q4 2024 suggest that Egypt’s economic activity grew at a faster pace compared to the 3.5 percent registered in Q3 2024, indicating sustained recovery in economic activity.
Real GDP growth in Q3 2024 was primarily driven by the increasing contributions of manufacturing and transportation. “While estimates for the output gap indicate that real GDP remains below potential, supporting the disinflation path over the short term, it is expected that the economy will gradually move closer to its full potential by end of FY 2025/26,” the central bank added.
Regarding the labor market, the unemployment rate declined to 6.4 percent in Q4 2024 from 6.7 percent in Q3 2024.
“While annual food inflation continues to decelerate, recording 20.8 percent in January 2025, annual non-food inflation remains sticky around 25.5 percent on average throughout 2024, reflecting the gradual dissipation of previous shocks,” added the statement.
Inflation to decline substantially in 2025
Meanwhile, annual inflation in Egypt experienced a slower pace of deceleration throughout the second half of 2024 compared to the first half, stabilizing at 24.0 percent in January 2025. Annual core inflation remained broadly stable in Q4 2024, recording 22.6 percent in January 2025.
Headline inflation climbed to a record high of 38 percent in September 2023 after falling to 26.5 percent in October 2024.
“Headline inflation is expected to decline substantially in Q1 2025, driven by the cumulative impact of monetary policy tightening and the favorable base effect. This downward trajectory will continue during 2025, albeit at a slower pace given the expected drag effect from the fiscal measures aimed at tightening the fiscal stance,” added the central bank.
Egypt’s central bank added that the committee’s decisions regarding the appropriate time for beginning the interest rate easing cycle will be assessed on a meeting-by-meeting basis.
