The Central Bank of Egypt (CBE) announced that it will keep the current key interest rates unchanged following its latest Monetary Policy Committee (MPC) meeting, which was the last one held in the 2023/2024 fiscal year.
The CBE’s overnight deposit rate, overnight lending rate, and main operation rate will remain unchanged. The bank also maintained the discount rate at 27.25 percent, 28.25 percent, 27.75 percent, and 27.75 percent respectively.
The CBE cited the recent reduction in inflation as the primary reason for its decision. Inflationary pressures have eased, with annual headline and core inflation declining to 32.5 percent and 31.8 percent respectively in April 2024, after peaking at 38 percent and 41 percent in September 2023 and June 2023 respectively.
The central bank expects inflation to decline further over the course of 2024, with a significant drop anticipated in the first half of 2025. This outlook is driven by tightened monetary policies and the unification of the foreign exchange market, which occurred after the CBE hiked rates by 600 basis points and allowed the Egyptian pound to float in March 2024.
Economic growth outlook
Other factors supporting price stability include sizeable foreign direct investment inflows, improved external financing conditions, and increasing domestic and foreign demand for Egyptian pound-denominated assets.
Despite the slowdown in inflation, the current rates remain well above the CBE’s targets of 7 percent (±2 percent) by the fourth quarter of 2024 and 5 percent (±2 percent) by the fourth quarter of 2026.
On the growth front, the CBE projected Egypt’s real GDP to rebound in the upcoming 2024/2025 fiscal year, after declining further in the current 2023/2024 period. The slowdown was mainly attributed to the manufacturing sector’s declining contribution.
Monetary policy stance
Globally, the CBE noted that the economic growth outlook remains positive, albeit below historical averages, and major central banks have maintained their monetary policy tightening despite easing inflationary pressures.
The CBE stated that the current monetary policy stance remains appropriate to contain inflation, and it will continue to assess the impact of its tightening measures on the economy.
Risks to the inflation outlook
However, the bank highlighted potential upside risks to the projected inflation decline, including escalating geopolitical tensions, unfavorable climate conditions, and higher-than-expected fiscal prudence measures.
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