Analysis by Ahmed Kamel
The Central Bank of Egypt (CBE) has kept overnight interest rates steady in the wake of deceleration of inflation. The CBE’s Monetary Policy Committee (MPC) said the“currentpolicy rates remain appropriate” to maintain the prevailing tight monetary stance until a significantand sustained decline in inflation is realized.
The MPC kept overnight deposit and lending rates steady at 27.25 and 28.25 percent, respectively. It also left the main operation and discount rates unchanged at 27.75 per cent each, according to CBE data.
Urban consumer inflation fell to 25.7 per cent in July, against 27.5 per cent a month earlier. The headline inflation stood at 28.1 per cent in May, according to data from the state-run Central Agency for Public Mobilization and Statistics (CAPMAS).
The country’s core inflation, which takes out fruit, vegetables and energy from calculating consumer inflation, plunged to 24.4 per cent in July, down from 26.6 per cent a month earlier. The core inflation was at 27.1 per centin May, according to CBE data.
The downtrend in inflationary pressures has been a result of a stabilized foreign exchange rate since the CBE floated the pound versus the US dollar on March 6.
Monetary outlook
The MPC might start gradual monetary easing in 2024 Q4 by slashing overnight interest rates by 200 basis points. US-based investment bank Morgan Stanley expects the MPC to cut rates by up to 600 basis points by June 2025.
The MPC has reiterated that the path of future policy rates remains a function of inflation expectations rather than prevailing rates and will not hesitate to utilize all tools at its disposal to maintain the disinflation momentum and safeguard price stability over the medium term.
The MPC is scheduled to meet three times in Q4: on October 17, November 21 and December 26.
Softening GDP
Egypt’s real GDP growth softened to 2.2 per cent in the first quarter (Q1)of 2024, down from 2.3 per cent in2023 Q4, according to CBE data. The MPC attributed the GDP softening to declining public contribution to economic activity, notingthat recent uptick inprivate economic activity “was not sufficient” to offset the decline in public economic activity.
“Updated leading indicators for Q2 2024 indicate that real GDP growth has started to pick up andis expected to gradually recover as of fiscal year 2024/25, following a marked slowdown in fiscalyear 2023/24,” said an MPC statement, a copy of which was obtained by The Egyptian Gazette.
The MPC has noted that real economic activity remains “below potential,supporting the forecasted disinflation path over the coming period, and is projected to remain so until it convergestowards its potential over the medium term. “Meanwhile, the unemployment rate declined to 6.5percent in 2024 Q2, compared to 6.7 percent in 2024Q1, mainly driven by robust employment in
the agriculture sector,” the MPC statement read.
The S&P Global Egypt Purchasing Managers’ Index (PMI) rose to 50.4 in August, up from 49.7 a month earlier.
S&P Global said businesses in Egypt raised their staffing levels for thesecond consecutive month and increased their purchases ofinputs, which subsequently led to a renewed uplift in stocklevels.
