Egypt’s central bank, faced with accelerating inflation, has on Thursday kept its key interest rates unchanged for the second policy meeting in a row, confounding economists who had forecast it would raise them.
In its meeting, the Monetary Policy Committee (MPC) decided to keep the overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 11.25 percent, 12.25 percent, and 11.75 percent, respectively.
The discount rate was also kept unchanged at 11.75 percent.
“The MPC decided that keeping policy rates unchanged remains consistent with achieving price stability over the medium term. The MPC treats the developments emanating from the Russo-Ukrainian conflict to be among the exogenous shocks that are outside the scope of monetary policy and yet may lead to transitory deviations from pre-announced target rates.” a central bank’s MPC statement read.
In July 2022, Egypt’s annual headline urban inflation resumed its upward trend, that started in December 2021, to record 13.6 percent, that is after decelerating in June 2022 to record 13.2 percent.
July’s annual core inflation – which excludes volatile food and regulated items – registered 15.6 percent in July 2022 from 14.6 percent during the previous month. The increase was driven by higher prices of core food, retail items and services. This can be mainly attributed to the seasonal impact of Eid Al-Adha, the repercussions of the Russo-Ukrainian conflict, as well as, the indirect effects of higher prices of fuel products.
“Monetary policy tools are utilised to anchor inflation expectations, contain demand-side pressures and second-round effects emanating from supply shocks that may lead to deviations from inflation targets. Therefore, in accommodation of the first-round effects of supply shocks, the elevated annual headline inflation rate will be temporarily tolerated relative to the CBE’s pre-announced target of 7 percent (±2 percentage points) on average in 2022 Q4, before declining thereafter.”
“In its decision to maintain policy rates unchanged today, the MPC takes note of its policy rate hikes in its previous meetings, and will continue to assess their impact on inflation expectations and other macroeconomic developments over the medium term. Achieving low and stable inflation over the medium term is a requisite condition to achieve sustainable economic growth.”
“The MPC reiterates that the path of future policy rates remains a function of inflation expectations, rather than of prevailing inflation rates and as such, will not hesitate to adjust its stance to achieve its price stability mandate.”
