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Egypt Monetary Policy March 2021

Egypt: Central Bank holds rates steady in March

At its monetary policy meeting on 18 March, 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 third hold in successive meetings and was in line with market analysts’ expectations.

The Bank’s decision came amid relatively weak inflationary pressures at the beginning of the year, with inflation clocking in at 4.5% in February (January: 4.3%) and thus remaining below the target floor of 5.0%. The hold also came as the economic recovery picked up steam, with preliminary data indicating 2.0% growth on an annual basis in October–December 2020 (July–September: +0.7% yoy) and global economic and financial conditions being cited as accommodative—all of which 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”.

Regarding the outlook, Farouk Soussa and Rositsa Chankova, analysts at Goldman Sachs, commented:

“We expect inflation to average +4.0%yoy in 2021H1, and 4.4%yoy for the year as a whole, significantly below the lower bound of the CBE’s inflation target. In our view, this will provide the basis for a 50bp cut to the policy rate in Q2, and another 50bp cut in Q3. That said, we believe this will be contingent on global uncertainties receding from current levels. We also note that rising oil and food prices provide upside risks to our inflation projections.”

The next monetary policy meeting is set for 29 April.

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