Egypt: Central Bank holds rates steady in December
At its monetary policy meeting on 24 December, the Central Bank of Egypt (CBE) kept the overnight deposit, overnight lending and main operation rates unchanged at 8.25%, 9.25% and 8.75% respectively. The hold followed September and November’s respective 50-basis-point cuts—giving a total of 400 basis points of cuts since March—and was in line with market analysts’ expectations.
The decision came amid a steady rise in inflationary pressures towards the end of 2020, with inflation clocking 5.7% in November. That said, it still came in below the target floor of 6.0%. In response, the Bank lowered its next forward-looking inflation target, reducing it to 5.0–9.0% from the previous 6.0–12.0% range. This comes amid a gradual recovery in activity—preliminary data for July–September indicated the economy grew 0.7% in annual terms (April–June: -1.7% yoy)—which likely gave the Bank further room to take a wait-and-see approach.
Looking ahead, the CBE stated in its communiqué that it would “closely monitor all economic developments and will not hesitate to utilize all available tools to support the recovery of economic activity, within its price stability mandate”.
Regarding the outlook for inflation, analysts at HC Securities commented:
“Risks to containing inflation at 7% (+/- 2%) in 2021 include: 1) the impact of the new coronavirus variants on the domestic supply-demand dynamics and the global supply chain, 2) better-than-expected results from the rollout of the coronavirus vaccine resulting in speedier-than-expected economic recovery posing upward inflation pressures, and 3) lower ability of the government to provide basic food items at reasonable prices which could pose upward pressure on food prices, in our view.”
The next monetary policy meeting is set for 4 February.