Egypt’s Central Bank Maintains Overnight Interest Rates, Reports Reuters

CAIRO – Egypt’s central bank decided to maintain its overnight interest rates on Thursday, citing a decrease in inflation pressures alongside a slowdown in economic growth.

The bank’s lending rate was kept at 28.25%, and the deposit rate remained at 27.25%. This marks the third consecutive instance where rates have been held steady since a substantial 600 basis point increase on March 6, which coincided with the signing of an $8 billion financial support agreement with the International Monetary Fund.

A majority of analysts, 14 out of 15 surveyed, anticipated that rates would remain unchanged, with only one analyst predicting a reduction of 100 basis points.

The central bank’s monetary policy committee (MPC) stated that “with the gradual easing of previous shocks, inflationary pressures have continued to subside, as annual headline and core inflation have declined for the fifth consecutive month.”

Egypt’s economy, which has faced numerous challenges including the coronavirus pandemic, the fallout from Russia’s invasion of Ukraine, and the ongoing conflict in Gaza, is showing signs of strain. Inflation fell to 25.7% in July, marking the first time since January 2022 that real interest rates turned positive. This decline comes after inflation peaked at an all-time high of 38% in September. Upcoming August inflation figures are expected shortly.

The MPC reported that real GDP growth softened to 2.2% in the first quarter of 2024, compared to 2.3% in the last quarter of 2023. This slowdown is attributed to reduced public sector contributions to economic activity, notably due to disruptions in Red Sea maritime trade affecting the service sector.

The MPC expressed optimism regarding a gradual recovery in economic growth for the fiscal year starting on July 1, forecasting a significant decline in inflation by the first quarter of 2025. They noted, “The gradual unwinding of food inflation, along with improved inflation expectations, suggests that inflation is currently on a downward trajectory.”