Egypt’s central bank leaves key interest rates unchanged

Egypt’s central bank has left its key interest rates unchanged during its monetary policy committee (MPC) meeting on Thursday, the bank said in a statement.

The committee kept the overnight lending rate at 9.25 percent and the overnight deposit rate at 8.25 percent for a sixth consecutive time, after cutting rates in September and November.

The MPC noted that annual headline urban inflation marginally increased to 4.9 percent in June 2021 from 4.8 percent in May 2021, reflecting an unfavourable base effect for the second consecutive month.

Annual inflation readings are expected to continue to be affected by unfavorable base effects in the near term, it added.

The slight uptick in June 2021 was driven by the higher annual inflation of food items, which accelerated to 3.4 percent in June 2021 from 1.7 percent in May 2021, reflecting higher annual contribution of subsidised and core food items, the committee said.

Meanwhile, annual nonfood inflation fell to 5.6 percent in June 2021 from 6.3 percent in May 2021, which is its lowest recorded level since June 2014. On the other hand, annual core inflation rose to 3.8 percent in June 2021 from 3.4 percent in May 2021.

The MPC said global economic activity was expected to continue recovering from the COVID-19 pandemic. Egypt’s real GDP growth is estimated to have recorded a preliminary figure of 2.8 percent in the financial year 2020/21, compared to 3.6 percent in the previous year.

“Additionally, sectoral growth continued to pick up, as detailed data up to 2021 Q1 showed that it remains supported by the positive contributions of trade, construction, and communications, as well as natural gas extractions.” the statement read.

“Furthermore, leading indicators point towards a sustained improvement across most sectors. Meanwhile, the unemployment rate registered 7.4 percent in 2021 Q1, compared to 7.2 percent in 2020 Q4.”

The MPC further said that global economic activity continues to recover from the COVID-19 pandemic, although growth remains uneven across regions, as the pace of vaccinations varies across countries.

“Global financial conditions are expected to remain accommodative and supportive of economic activity over the medium term. International prices for oil have continued to increase driven by both supply and demand factors.

“In the meantime, international prices for food and some other commodities remain at multi-year highs despite their drop recently.”

Against this background, the MPC said it “decided that keeping policy rates unchanged remains consistent with achieving the inflation target of 7 percent (±2 percentage points) on average in 2022 Q4 and price stability over the medium term.”