Egypt: Central Bank leaves rate unchanged in April following March's steep hike
April 28, 2016
At its meeting on 28 April, the Central Bank of Egypt (CBE) left all rates unchanged, keeping the overnight deposit rate at 10.75%, the overnight lending rate at 11.75% and the main operation rate at 11.25%. The decision followed March’s sharp 150-basis-point hike in all of the main rates with which it aimed to curb inflationary pressures after a notable devaluation of the Egyptian pound earlier that month. The Bank argued that April’s decision to keep rates on hold was appropriate to wait for the lagging effects of March’s rate hike to materialize and also given the current inflation and growth outlook.
As for price developments, the Bank highlighted that inflation has been falling steadily in recent months, dropping from around 11.0% in December to around 9.0% in March. Conversely, core inflation rose in March. In the Bank’s view, food prices are currently the largest driver of monthly price developments. Regarding the inflation outlook, the Bank is particularly monitoring the potential surge of domestic inflationary pressures, while prices pressures from imported inflation are subdued.
Regarding economic activity, the Bank noted that Egypt’s GDP grew 3.5% year-on-year in the period from July to December 2015. Sector-wise, main growth drivers were construction and real estate services, while tourism remained stuck in contraction and performance in the extractions sector was weak. On the expenditure side, consumption was the main growth engine, followed by investment, while the external sector dragged on GDP as dropping exports more than compensated for decreasing imports. Going forward, the Bank sees that investment in big infrastructure projects will support the economy, while slower global economic growth is a downside risk.
The Central Bank confirmed its commitment to a price stability mandate and said that it will monitor the impact of economic developments on the inflation outlook and that it stands ready to modify its key rates to preserve price stability. The next monetary policy meeting is scheduled for 16 June.