CBE Clarifies Reasons for Keeping Interest Rates Unchanged

The Central Bank of Egypt (CBE) kept interest rates unchanged for the third time in a row at 19.25% for deposits and 20.25% for lending.

The Central Bank attributed the fixing of interest rates in December 2023 to several factors, the first of which was the inflation rate, which was in line with expectations, as the annual rate of general urban inflation witnessed a slowdown during the months of October and November 2023, driven by the positive effect of the base period to record 34.6% in November from 35.8% in October.

In addition, the annual rate of core inflation continued to decline for the fifth month in a row to record 35.9% in November from 38.1% in October.

The monthly developments were consistent with expectations to reflect the seasonal decline in agricultural product prices, in addition to the rise in administratively determined commodity prices during November.

Secondly, the growth rate of the Egyptian economy, as the real GDP growth rate witnessed a slowdown, recording 2.9% during the second quarter of 2023 compared to a rate of 3.9% during the previous quarter.

Accordingly, the real GDP growth rate recorded 3.8% during the fiscal year 2022/23, compared to a growth rate of 6.7% in the FY2021/22.

The slowdown in the growth rate of economic activity was mainly a result of the contraction in total domestic investments, while both consumption and net exports contributed positively to the economic growth rate.

In addition, the GDP growth rate is expected to continue to slow during the FY2023/24 compared to the previous fiscal year, and to gradually increase again thereafter.

At the global level, economic activity was characterized by a slowdown, as tight monetary policies followed by the major central banks contributed to lowering both economic growth expectations compared to what was presented to the MPC at its previous meeting.

Global commodity prices, especially energy prices, also witnessed a decline in general, and this came as a result of the decline in speculation regarding expectations of a shortage in oil supplies and a decrease in global demand.

Global inflationary pressures have also decreased recently as a result of the restrictive monetary policies that have been followed in many economies, and accordingly, inflation rate expectations for those economies have declined compared to what was presented at the previous meeting.

However, there is a state of uncertainty about inflation expectations, especially with regard to global energy prices, as a result of the geopolitical tensions that the world is currently witnessing.

In light of the above, the MPC decided to keep the central bank’s key interest rates unchanged.