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Egypt Monetary Policy June 2022

Egypt: Central Bank unexpectedly holds fire in June meeting

At its 23 June monetary policy meeting, the Central Bank of Egypt (CBE) opted to leave all of its rates unchanged, following May’s 200 basis point increase. As a result, the overnight deposit, the overnight lending and main operations rates remained at 11.25%, 12.25% and 11.75%, respectively. This took analysts by surprise, as they had penciled in a 50 basis point hike.

This unexpected decision was driven by a slowdown in domestic economic activity, with a fading base effect and fallout from the war in Ukraine the main drivers. According to the Bank’s estimate, annual GDP growth slowed to 5.4% in Q1 2022, following the previous quarter’s 8.3% expansion. The Bank noted that the economy is now projected to grow at a slower-than-previously-expected pace this year, largely due to the war in Ukraine. With regard to inflation, the Bank pointed out that while both headline and core inflation continued to accelerate in May, they did so at softer rates. Given these developments, the CBE stated it would first assess the impact of the prior two hikes on the economy before making any further move.

With regard to forward guidance, the Bank did not provide any hints on the future direction of policy. The tone of the communiqué was largely unchanged from the previous meeting, as it once again reiterated that “The path of future policy rates remains a function of inflation expectations, rather than prevailing inflation rates.” The CBE added that “In accommodation of the first-round effects of supply shocks, the elevated annual headline inflation rate will be temporarily tolerated” outside of its 5.0–9.0% target band.

The next monetary policy meeting is set for 18 August.

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