The Monetary Policy Committee of the Central Bank of Egypt during its Thursday meeting raised overnight interest rates by 100 basis points to avoid inflationary pressures and control inflation expectations, according to the committee’s statement.
The lending rate was increased to 20.25 percent, the deposit rate to 19.25 percent and the main operation rate rose to 19.75 percent.
The credit and discount rates were also raised by 100 basis points to 19.75 percent.
The committee believes that inflation rates are expected to peak in the second half of 2023, before returning to the previously announced target inflation rates, supported by the restrictive monetary policies so far, it added.
The course of basic interest rates depends on expected inflation rates and not prevailing inflation rates, it said, adding it will not hesitate to use all available monetary policy tools to maintain restrictive monetary conditions, aiming to achieve target inflation rates of seven percent (± two percentage points) on average during the fourth quarter of 2024 and five percent (± two percentage points) on average during the fourth quarter of 2026.
Meanwhile, expectations for global economic activity improved compared to what was presented to the previous expectations at the Monetary Policy Committee’s meeting in June.
The main rates of return are expected to remain high as a result of the persistence of global inflation rates at above-targeted levels, which is consistent overall with the tightening of global financial conditions.
Global commodity price expectations continued to decline compared to previous expectations at the Monetary Policy Committee’s meeting in June.
Oil prices increased during July while expected inflation rates in some major economies declined, though staying at levels that exceeded the target rates.
Egypt’s growth stays unchanged
In Egypt, real economic activity growth rate remained unchanged, at 3.9 percent during the first quarter of 2023 compared to the fourth quarter of 2022.
The preliminary data for the first quarter of 2023 shows that economic activity was driven by the positive contribution of the tourism, agriculture, and construction sectors.
The GDP growth rate is expected to slow down during the fiscal year 2022/2023 compared to the previous fiscal year, in line with the preliminary indicators for the second quarter of 2023.
It is expected to gradually increase afterward in the medium term.
The unemployment rate decreased to 7.1 percent during the first quarter of 2023, compared to an average of 7.2 percent during the fourth quarter of 2022.
The annual rate of urban headline inflation rose to 35.7 percent in June 2023 from 32.7 percent in May. The annual rate of core inflation rose to 41.0 percent in June 2023 from 40.3 percent in May.
This was driven by a broad rise in the prices of most CPI items as a result of persistent supply shocks.
In light of the foregoing, and taking into account the balance of risks surrounding inflation, the Monetary Policy Committee raised basic interest rates at the Central Bank.
