CBE Maintains Interest Rates for Fourth Consecutive Time
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- 23 Oct 2024
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The Central Bank of Egypt (CBE) has decided to maintain its interest rates for the fourth consecutive time, keeping the overnight deposit rate at 27.25%, the lending rate at 28.25%, and the main operation rate at 27.75%. This decision, made by the Monetary Policy Committee (MPC), reflects a careful assessment of both global and local economic conditions since the last meeting.
The MPC noted that tight monetary policies in both advanced and emerging economies have contributed to a decline in inflation rates. Some central banks have begun to cut interest rates as inflation approaches their target levels. However, the CBE remains cautious, as the economic growth outlook is vulnerable to downside risks. The committee highlighted that restrictive monetary policies could negatively impact economic activity, particularly in light of ongoing geopolitical tensions that have led to volatility in global commodity prices, especially energy.
On the domestic front, Egypt's real GDP grew by 2.4% in the second quarter of 2024, a slight increase from 2.2% in the first quarter. This growth is attributed to the contributions from non-oil manufacturing, construction, and trade sectors. However, the overall growth rate for the fiscal year 2023/2024 is projected to slow to 2.4%, down from 3.8% in the previous fiscal year. Preliminary indicators for the third quarter suggest a gradual recovery in economic activity, with expectations of reaching maximum capacity by fiscal year 2025/2026.
Despite this growth, the MPC indicated that real GDP remains below its maximum capacity, which supports the anticipated downward trend in inflation. The committee expects the annual rates of general and core inflation to stabilize around 26.4% and 25.0%, respectively, by September 2024. Non-food commodities have been the primary drivers of inflation, influenced by state measures to control public finances.
The MPC believes that the gradual decline in food inflation and improved inflation expectations since the beginning of the year suggest a potential continuation of the downward trend in inflation. However, this outlook is tempered by risks such as regional tensions, rising global commodity prices, and the possibility that public finance control measures may have a more significant impact than anticipated.
The committee anticipates that inflation will stabilize at current levels until the fourth quarter of 2024, with a decline expected starting in the first quarter of 2025. This expectation is based on the cumulative effects of previous monetary tightening decisions and the positive impact of the base period.
In light of these considerations, the MPC concluded that maintaining the current interest rates is appropriate until there is a significant and sustainable decline in inflation. The committee emphasized its commitment to a data-driven approach in determining the appropriate level and duration of monetary tightening, ensuring that it remains responsive to evolving economic conditions.
The CBE has reiterated its readiness to utilize all available monetary policy tools to support the downward trajectory of inflation and achieve price stability in the medium term. This cautious yet proactive stance reflects the complexities of navigating both local and global economic challenges while striving for sustainable growth and stability in Egypt's economy.
