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Egypt Monetary Policy February 2023

Egypt: Central Bank pauses tightening cycle in February, surprising markets

At its first scheduled meeting of 2023 on 2 February, the Central Bank of Egypt (CBE) paused its tightening cycle and kept the overnight deposit, overnight lending and main operations rates unchanged at 16.25%, 17.25% and 16.75%, respectively. The decision surprised market analysts; a 150 basis point increase had been expected. The move came on the heels of December’s 300 basis point rise, which had brought the cumulative increase since March 2022 to 800 basis points—550 of which were delivered in Q4 2022 alone.

The Bank stood pat despite the continued acceleration of both headline and core inflation through December. It assessed that, with the rates at current levels, inflation should return to its 5.0–9.0% target band by Q4 2024. Regarding activity, the CBE noted that while economic growth accelerated in Q3 2022, high-frequency data revealed that momentum slowed in the year’s final quarter. This allowed the Bank to take a wait-and-see approach to assess the impact of recent hikes.

In its communiqué, the CBE did not provide explicit guidance on future policy moves. It did state, however, that “the path of future policy rates remains a function of forecasted inflation rather than prevailing inflation rates”. Hence, if upside risks to the inflationary outlook were to increase and de-anchor inflation expectations, the CBE would likely resume its tightening cycle.

The next scheduled monetary policy meeting is set for 30 March 2023.

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