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Egypt Monetary Policy August 2021

Egypt: Central Bank holds rates steady in August

At its monetary policy meeting on 5 August, the Central Bank of Egypt (CBE) kept the overnight deposit, overnight lending and main operation rates unchanged at 8.25%, 9.25% and 8.75%, respectively. The decision marked the sixth hold in successive meetings and was in line with market analysts’ expectations.

The Bank’s decision came amid relatively mild inflationary pressures so far this year, with inflation clocking in at 4.9% in June (May: 4.8%) and thus remaining below the target floor of 5.0%. Moreover, an accelerating economic recovery, with preliminary data indicating 2.8% growth on an annual basis in FY 2021—which would imply GDP expanded 5.6% in April–June 2021 (January–March 2021: +2.9% yoy)—likely gave the Bank further room to leave rates unchanged.

Going forward, the CBE reaffirmed in its release that it “will not hesitate to utilize all available tools to support the recovery of economic activity, within its price stability mandate”. The majority of panelists see rates staying on hold until the end of 2021, although a small number see potential for 50 basis points of further cuts.

Farouk Soussa, economist at Goldman Sachs, is one of those that envisages further cuts ahead:

“In our view, the monetary stance remains exceptionally tight, with real rates in Egypt among the highest in emerging markets. […] Given a structurally high trade deficit that needs to be financed by external inflows, it is likely that this stance will be maintained until the adverse effect of the pandemic on current account inflows subsides. On our estimates, we expect the economic environment to be more conducive to easing towards the end of the year, assuming inflation remains low, external financing conditions remain benign and current account receipts (especially tourism) begin to recover as expected.”

The next monetary policy meeting is set for 16 September.

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