Cityscape in Egypt

Egypt Monetary Policy August 2022

Egypt: Central Bank surprises markets by staying put in August

At its 18 August monetary policy meeting, the Central Bank of Egypt (CBE) opted to maintain all of its rates unchanged, mirroring its June move. As a result, the overnight deposit, the overnight lending and main operations rates remained at 11.25%, 12.25% and 11.75%, respectively. The move took analysts by surprise as they had penciled in a 50 basis point increase. The decision is the first under the tenure of newly-named Governor Hassan Abdalla, following the unexpected resignation of Tarek Amer the day prior to the meeting.

The surprise move was driven by the Bank’s assessment that the acceleration of inflation in July was driven by both spillovers from the war in Ukraine and the holiday season—which the Bank deemed to be outside the scope of monetary policy. With regards to activity, the Bank revealed a preliminary estimate that the economy expanded 6.2% in annual terms in FY 2022 (July 2021–June 2022), which would imply a 1.3% annual GDP growth for Q4 FY 2022 (April–June 2022). The result surprised on the upside. That said, the CBE stated that the fallout from the war in Ukraine is expected to weigh on activity ahead. As such, the Bank stated its current policy stance is consistent with “with achieving price stability over the medium term” and it will assess the impacts of its previous rate increases.

The CBE did not provide explicit guidance regarding future policy moves. It stated, however, that given recent developments “the elevated annual headline inflation rate will be temporarily tolerated relative to the CBE’s pre-announced target of 7 percent (±2 percentage points) on average in 2022 Q4, before declining thereafter”. Meanwhile, the Bank asserted that “the path of future policy rates remains a function of inflation expectations, rather than of prevailing inflation rates and as such, [it] will not hesitate to adjust its stance to achieve its price stability mandate”.

The next monetary policy meeting is set for 22 September.

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