CBE Cuts Interest Rates by 50 Basis Points

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided in its meeting on Thursday to cut the rate of deposit and lending for one night and the rate of the main operation of the central bank by 50 basis points to record 8.75%, 9.75% and 9.25%, respectively.

The MPC also cut the credit and discount rates by 50 basis points, to 9.25%.

In a statement today, CBE indicated  that the annual rate of inflation dropped to reach 3.4% in August 2020 compared to 4.2% in July, the second lowest rate recorded in nearly 14 years.

"The continued decline in inflation was supported by the drop in the annual contribution of food commodities, driven mainly by the decrease in the prices of fresh vegetables, in contrast to their seasonal pattern for the second month in a row," the statement noted.

"The monthly rate of inflation continued to reflect the decline in food commodity prices and the rise in non-food commodity prices for the fourth consecutive month, and in light of this, the annual rate of core inflation rose to 0.8% in August 2020 compared to 0.7% in July 2020," the bank said.

Preliminary data showed that the real growth rate of the gross domestic product (GDP) reached 3.5% during the fiscal year 2019/20, compared to 5.6% during the Q1 of 2020.

The unemployment rate recorded 9.6% during Q2 2020, compared to 7.7% during the Q1 2020.

These developments came as a result of the negative impact of the spread of the corona pandemic on the economy, yet,  data showed stability of some initial indicators since June.

The Central Bank indicated that globally, economic activity is still weak despite some recovery. Global oil prices in general have stabilized, and global financial conditions continued to improve despite the prevailing uncertainty.

In light of the foregoing and as a result of containing inflationary pressures, the MPC decided to reduce the basic interest rates by 50 basis points, and that decision is consistent with achieving price stability in the medium term, and reducing the basic return rates at the committee meeting provides appropriate support for economic activity at the present time.

Meantime, CBE confirmed that the MPC continues to follow all economic developments, and will not hesitate to adjust its policy to maintain monetary stability.