Cityscape in Egypt

Egypt Monetary Policy December 2021

Egypt: Central Bank stays put in December meeting, in line with expectations

At its 16 December monetary policy meeting, the Central Bank of Egypt (CBE) once again decided to keep the overnight deposit, overnight lending and main operations rates unchanged at 8.25%, 9.25% and 8.75%, respectively. The decision marked the ninth consecutive hold and met market analysts’ expectations.

The Bank’s decision came amid relatively contained price pressures, as inflation decelerated significantly in October and November, and remained comfortably within the Bank’s 5.0%–9.0% target band. Moreover, the Bank reiterated previous increases in inflation were temporary and partly due to statistical effects. Moreover, recently released data revealed that the economic recovery accelerated further in July–September, with annual GDP growth coming in at a preliminary 9.8% in the quarter, giving the Bank further room to leave rates unchanged.

Regarding future policy moves, the Bank did not give explicit forward guidance other than it aims to keep inflation within target on average and maintain price stability over the medium term. The tone of the Bank’s communiqué was unchanged from previous meetings, stating that the CBE “closely monitors all economic developments and will not hesitate to utilize all available tools to support the recovery of economic activity, within its price stability mandate”. The majority of our panelists see rates unchanged in 2022, although a small number see room for rate cuts.

Farouk Soussa, economist at Goldman Sachs, is one of those that sees scope for lower rates in 2022:

“With low inflation and high nominal rates, Egypt currently has among the highest real rates in the world, which are acting as a potential drag on growth, in our view. Looking ahead, we see scope for easing next year as inflationary impulses from external factors recede in the medium term and provide a dovish backdrop for the CBE, allowing it to resume easing as soon as external conditions allow, although we do not see this happening before the second quarter of 2022.”

The next monetary policy meeting is set for early 2022.

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