Egypt: Central Bank keeps rates unchanged, concerns over inflation and capital outflows persist
January 28, 2016
At its 28 January monetary policy meeting, the Central Bank of Egypt (CBE) decided to maintain the overnight deposit rate at 9.25%. The decision, which market analysts had expected, followed a 50-basis-point increase at the previous meeting that took place at the end of December. The Bank also kept its overnight lending rate and main operation rate unchanged at 10.25% and 9.75%, respectively. Amid concerns about persistently-high inflation and ongoing capital outflows, the Bank has taken a wait-and-see approach to assess the impact of December’s decision.
In its accompanying statement, the CBE emphasized that the economy had expanded 4.2% annually in the fiscal year 2014–2015, marking an acceleration over the 2.2% growth recorded in the previous year. Manufacturing, construction, real estate and tourism drove the result. Going forward, the Bank sees that the downside risks to the domestic outlook coming from weak global economic recovery and softening growth in emerging markets are offsetting the positive impact of public investment in large infrastructure projects.
In terms of price developments, inflation was unchanged at November’s 11.1% in December. Stable inflation reflected the impact of government measures to curb inflation, as well as subdued dynamics in volatile food prices. Meanwhile, core inflation in December declined from 7.4% in November to 7.2%. According to the CBE, upside risks to inflation remain a concern amid domestic supply issues and are only partially mitigated by contained inflation of imported goods amid low global commodity prices.
The Bank judged that, “the key CBE rates are currently appropriate given the balance of risks surrounding the inflation and GDP outlooks.”
Author: Armando Ciccarelli, Head of Data Solutions