Egypt’s central bank keeps key interest rates on hold

The Central Bank of Egypt (CBE) kept its main interest rates steady on Thursday, despite a decline in inflation in May and continuing economic pain caused by the coronavirus.

CBE keeps overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 9.25 percent, 10.25 percent, and 9.75 percent, respectively.

All but one of the 17 analysts polled predicted the central bank would keep rates steady at its regular monetary policy committee meeting on Thursday. The one dissenting analyst forecast a 100 bps cut.

According to a CBE statement, annual headline urban inflation declined to 4.7 percent in May 2020, down from 5.9 percent in April 2020, supported by muted inflationary pressures as well as favourable base effects where monthly headline inflation recorded zero in May 2020, down from 1.1 percent in May 2019.

The decline of annual headline inflation was mainly driven by lower annual food contribution, supported by favourable base effects stemming mainly from Ramadan and Eid-Al-Fitr being in May in 2019 compared to April and May in 2020, as well as lower annual non-food contribution by a lesser extent as the monthly increases in non-food items were weaker compared to the previous year, read the CBE statement.

Meanwhile, annual core inflation declined to 1.5 percent in May 2020, down from 2.5 percent in April 2020, the lowest rate on record.

Real GDP growth recorded a preliminary figure of five percent in the first quarter of 2020 as expected, down from 5.6 percent in the fourth quarter of 2019, as economic activity in March 2020 was partially affected by the impact of COVID-19 and the resulting containment measures, the CBE said.

Unemployment recorded 9.2 percent in April 2020, compared to 7.7 and eight percent in the first quarter of 2020 and the fourth quarter of 2019, respectively, according to the statement.

The CBE stated the recently announced gradual easing of lockdown measures is expected to support the recovery of economic activity