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The Central Bank of Egypt (CBE) has decided to maintain its benchmark interest rates unchanged for the third consecutive time, citing the balance of domestic and global economic conditions. Following a meeting on Thursday, the CBE’s Monetary Policy Committee (MPC) announced that the overnight deposit rate would remain at 27.25%, the overnight lending rate at 28.25%, and the main operation rate at 27.75%. The discount rate also stays fixed at 27.75%.
The MPC explained that this decision reflects recent developments in both global and local markets since its previous meeting. Egypt’s real GDP growth softened slightly to 2.2% in the first quarter of 2024, down from 2.3% in the last quarter of 2023. The softening of growth was largely due to the decline in public sector contributions to economic activity, particularly impacted by disruptions in Red Sea maritime trade, which weakened the service sector. Despite a slight uptick in private economic activity, it was insufficient to offset the broader public sector slowdown.
Looking ahead, early indicators for the second quarter of 2024 suggest that real GDP growth is beginning to pick up, with expectations of a gradual recovery in fiscal year 2024/25. However, real economic activity remains below its potential, which supports the current forecast of a disinflationary trend in the coming period.
In positive news, Egypt’s unemployment rate fell to 6.5% in the second quarter of 2024, down from 6.7% in the first quarter, driven by strong employment growth in the agricultural sector.
Inflation has also shown signs of easing. For the fifth consecutive month, both headline and core inflation rates have declined, with annual headline inflation dropping to 25.7% and core inflation to 24.4% in July 2024. This is primarily due to a significant reduction in food inflation, which fell to 29.7%—the lowest rate in almost two years—benefiting from a favorable base effect following the high inflationary pressures of 2023.
The MPC emphasized that the deceleration in inflation suggests a return to more stable monthly price movements, following the CBE’s tightening of monetary policy. Inflation is expected to stabilize around current levels through the end of 2024, before a significant decline in early 2025, driven by the cumulative effects of the tightening cycle and further fiscal consolidation.
However, the MPC also warned that risks to the disinflation path remain, particularly from global factors such as tighter oil supplies, regional geopolitical tensions, and uncertainty regarding protectionist trade policies. Despite these risks, the Committee affirmed that the current monetary policy stance remains appropriate to curb inflation until a sustained and significant decline is realized.
The Central Bank’s strategy is to maintain a tight monetary policy environment until inflation is firmly under control, ensuring economic stability while navigating external uncertainties.
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