Egypt: Central Bank keeps overnight deposit rate at multi-year high in July
July 28, 2016
At its meeting on 28 July, the Central Bank of Egypt (CBE) left all rates unchanged. Thus, the overnight deposit rate rests at a multi-year high of 11.75%, the overnight lending rate at 12.75% and the main operation rate at 12.25%. The Bank explained that it maintained the rates at their current levels in light of, “the balance of risks surrounding the inflation and GDP outlooks.” Amid a backdrop of rising inflation, the Bank has hiked interest rates by a cumulative 250 basis points so far this year: rates were increased in March—after the 13% surprise devaluation of the Egyptian pound heightened inflationary pressures—and in June.
Regarding price developments, the Bank said that both headline and core inflation had risen in June but that the monthly price increase had moderated somewhat compared to May. According to the Bank, a base effect was a main driver of June’s high inflation reading, while June’s monthly price increase largely reflected higher food and retail prices. The Bank considered that, “the pass-through of previous exchange rate movements to domestic prices […] remained limited,” in June.
As for economic growth, the Bank stated that Egypt’s GDP expanded an annual 4.5% in the period from July to December 2015. The CBE pointed out that both domestic and external aspects had continued to restrain growth in that period. Expenditure-wise, the expansion was driven by domestic demand, while the external sector limited growth. Sector-wise, growth was boosted by construction, real estate, internal trade and general government, while it was restrained by tourism and the industrial sector, especially mining.
The Central Bank reaffirmed its commitment to a price stability mandate and said that it will follow the impact of economic developments—especially changes in fiscal policy—on the inflation outlook closely. The CBE also emphasized that it stands ready to change its key rates to ensure price stability. The next monetary policy meeting is scheduled for 22 September.