URGENT: Egypt holds rates steady as inflation cools further

The Central Bank of Egypt (CBE) left on Thursday key interest rates unchanged for the third time in a row as inflation continues its downward trend for five months.

The CBE’s Monetary Policy Committee (MPC) decided to leave all key rates; the overnight deposit rate, lending rate, and main operation rate, unchanged at their current levels at 27.25 per cent, 28.25 per cent, and 27.75 per cent, respectively. The discount rate also maintained at 27.75 per cent.

The central bank kept rates steady at its last two meetings, on July 18 and May 23, a decision buoyed by decelerating inflation rates.

On March 6, the CBE hiked rates by 600 basis points (bps) at an all-time high, bringing total hikes since the beginning of the year to 800 bps.

Inflation rate decreased to 25.7 per cent in July, marking the first time the real interest rate has been positive since January 2022. This decline follows a peak of 38 per cent in September and a subsequent drop to 27.5 per cent in June.

The MPC judges that current policy rates remain appropriate to maintain the prevailing tight monetary stance until a significant and sustained fall in inflation is realised. However, it said that the “deceleration of inflation implies a return to normal monthly dynamics given the recent tightening cycle, with the receding impact of previous exchange rate and supply shocks.”

Inflation forecasts

The Committee forecast inflation to hover around current levels until the fourth quarter of 2024 given the implemented and projected fiscal consolidation measures. Nonetheless, it projects inflation to decline significantly in the first quarter of 2025 “due to the cumulative impact of monetary policy tightening and favourable base effect.”

However, the Committee said “risks to the disinflation path are tilted to the upside given tighter global oil supplies, escalation of regional geopolitical tensions, uncertainty regarding the adoption of protectionist trade policies, and higher than anticipated pass-through of fiscal measures.”

Attribution: CBE Monetary Policy Committee