Egypt’s central bank kept its overnight interest rates unchanged on Thursday, noting that although the economy was growing below potential it would leave its monetary policy unchanged until inflation fell.
The Central Bank of Egypt’s Monetary Policy Committee (MPC) decided to keep the CBE’s overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 27.25 percent, 28.25 percent, and 27.75 percent, respectively.
The committee also kept the discount rate unchanged at 27.75 percent. The decision reflects recent developments and outlook at the global and domestic levels since the previous MPC meeting.
“Considering developments at the domestic and global levels, the committee views the current monetary policy stance as appropriate until a significant and sustained decline in inflation materializes,” said the central bank in a statement.
Economy to grow below potential
Domestically, leading indicators for Q3 of 2024 pointed to Egypt’s real GDP growing at a faster pace compared to the 2.4 percent growth in Q2 2024. Egypt’s central bank expects economic activity to continue rising. However, it noted that estimates indicate that real GDP remains below potential.
Meanwhile, the unemployment rate ticked up marginally to 6.7 percent in Q3 of 2024 compared to 6.5 percent in Q2 of 2024, as the pace of employment creation fell short of absorbing new entrants into the labor market.
Annual inflation to remain steady this year
Egypt’s annual headline inflation remained broadly stable for the third consecutive month, at 26.5 percent in October 2024, mainly driven by the administered prices of non-food items such as liquefied petroleum gas (LPG) and pharmaceuticals. This aligns with annual core inflation slightly declining to 24.4 percent in October 2024 against 25 percent in September 2024.
It is also consistent with the unwinding of annual food inflation, which reached 27.3 percent in October 2024, the lowest rate in two years. This improvement along with positive inflation expectations, suggests that inflation will continue to decline.
Looking ahead, Egypt’s central bank expects inflation to persist near current levels till the end of 2024 with the balance of risks still tilted to the upside. These risks include geopolitical tensions, possible trade protectionism, and higher than anticipated pass-through of fiscal measures. Nevertheless, inflation is projected to ease starting Q1 of 2025, as the cumulative impact of monetary policy tightening and favorable base effect materialize.
“The MPC will continue to follow a data-driven approach to determine the duration of policy restrictiveness based on its assessment of the inflation outlook, dynamics of underlying inflation, and strength of monetary policy transmission,” the central bank added.
