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Egypt Monetary Policy March 2023

Egypt: Central Bank meets expectations and resumes tightening cycle in March

At its 30 March meeting, the Central Bank of Egypt (CBE) resumed its tightening cycle and delivered a 200 basis point hike. The move, which had been penciled in by markets, brought the overnight deposit, overnight lending and main operations rates to 18.25%, 19.25% and 18.75%, respectively. The decision followed February’s surprise hold and brings the cumulative increase since March 2022 to 1,000 basis points.

The Bank’s decision was driven by the sharp acceleration of headline and core inflation, which hit 32.0% and a record-high of 40.3% in February, respectively. Domestic supply chain disruptions, the steep weakening of the Egyptian pound, elevated money growth, demand-side pressures and increased spending during the holy month of Ramadan all contributed to the readings.

Regarding activity, the Bank reported that the economy posted a 3.9% year-on-year expansion in Q4 of the 2022 calendar year, slightly below Q3’s 4.4% growth. Additionally, the unemployment rate fell slightly in Q4. Meanwhile, higher-frequency indicators hint that activity continued to expand in Q1 of this year. This robust real-sector data gave the Bank room to hike rates.

In its communiqué, the CBE did not provide guidance on future policy moves. It did state, however, that policy remains a function of inflation expectations. Rates will therefore be at levels that guarantee inflation will hit the targets of 5.0–9.0% by Q4 2024 and 3.0–7.0% by Q4 2026. The Consensus among our analysts is for further rate hikes in the coming quarters in a bid to tame inflation.

The next scheduled monetary policy meeting is set for 18 May.

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