It also decided to keep the credit and discount rate at 27.75 percent.
This decision, according to a statement by the Central Bank of Egypt, reflects the latest developments and expectations at the global and local levels si
nce the previous meeting of the Monetary Policy Committee.
The statement explained that, on the global level, the economic growth rate remains largely stable, although it is lower than its level during the period prior to the Corona pandemic.
Tight monetary policies in advanced and emerging market economies have contributed to lower inflation globally, with some central banks continuing to cut key interest rates as inflation approaches its target levels.
The slight easing in monetary conditions is also due to downside risks to employment and economic growth.
The statement read: “As for commodity prices, despite the escalation of geopolitical tensions in the region, energy prices witnessed a slight decline, although expectations are still affected by the uncertainty regarding commodity prices in general.”
On the local side, Egypt’s real GDP growth rate slowed to 2.2 percent in the first quarter of 2024 compared to about 2.3 percent in the fourth quarter of 2023.
This slowdown is due to the decline in the public sector’s contribution to economic activity due to the impact of the Red Sea navigation crisis on the services sector, and the recent increase in private sector economic activity was not sufficient to compensate for this decline, according to the Central Bank of Egypt’s statement.
The Central Bank explained that the latest preliminary indicators for the second quarter of 2024 indicate that real GDP growth has begun to rise, and is expected to gradually recover starting from the fiscal year 2024/2025, after a noticeable slowdown during the fiscal year 2023/2024.
“However, real economic activity remains below its productive capacity, which supports the downward path of inflation over the coming period, and it is expected to remain so until it approaches its maximum capacity over the medium term.”
Inflationary pressures continued to decline as the impact of previous shocks gradually receded, with annual headline inflation declining to 25.7 percent and core inflation declining to 24.4 percent in July 2024 for the fifth consecutive month.
Despite the continued high inflation in non-food items, the significant decline in annual food inflation is still pushing overall inflation down, according to the Central Bank of Egypt.
The statement revealed that the annual rate of food inflation recorded 29.7 percent in July 2024, its lowest rate in nearly two years, reflecting the positive impact of the base period after high inflation rates during 2023.
According to the Central Bank of Egypt, the slowdown in inflation indicates that monthly inflation rates are returning to their usual pattern due to recent monetary tightening policies, with the impact of previous exchange rate and supply shocks declining. Inflation is expected to record rates close to its current levels until the fourth quarter of 2024, taking into account the fiscal consolidation measures taken and expected.
The CBE expects inflation to decline significantly in the first quarter of 2025 due to the cumulative impact of monetary tightening policies and the positive base effect. However, the downward path of inflation remains subject to upside risks, including declining global oil supplies, escalating regional geopolitical tensions, uncertainty over protectionist trade policies, and the possibility that fiscal consolidation measures will have a greater-than-expected impact.
The Central Bank said: “Based on the decisions of the Monetary Policy Committee in its previous meetings, the Committee believes that keeping the Central Bank’s basic interest rates unchanged is appropriate for the current period until the inflation rate declines significantly and sustainably. The Monetary Policy Committee will continue to assess the impact of its decisions on the economy in light of the current tightening of monetary conditions and in light of the data received during the coming period.”
The Committee indicated that it will continue to closely monitor economic developments and assess the risks surrounding inflation expectations, stressing that the expected path of the basic return rates depends on expected inflation rates and not prevailing inflation rates.
The Committee will not hesitate, according to the statement, to use all available monetary policy tools to strengthen the downward path of inflation and achieve price stability in the medium term.
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