By CentralBankNews.info
Egypt’s central bank lowered its key policy rates by another 100 basis points, as expected, noting inflation was continuing to decline while economic growth last year was the fastest since 2010.
The Central Bank of Egypt (CBE) has now cut its key rates by 200 basis points this year following a similar cut in February, the first rate cut since January 2015.
“In its last meeting on February 15, 2018 the MPC (monetary policy committee) began to ease its tight stance on interest rates that successfully managed to tame monthly inflation,” CBE said, adding:
“Cutting key policy rates today remains consistent with tight real monetary conditions and with achieving the inflation target of 13 percent (+_3 percent) in 2018 and single digits thereafter.”
The central bank today lowered its benchmark overnight deposit rate to 16.75 percent, the overnight lending rate to 17.75 percent, and the rate on its main operations and discount facility to 17.25 percent.
The main risk surrounding CBE’s outlook for inflation includes inflationary expectations, the timing and magnitude of reforms to subsidies, demand-side pressures, crude oil developments and the pace of tightening financial conditions.
Egypt’s headline inflation rate declined to 14.4 percent in February after peaking at 33 percent in July while the core inflation rate fell to 11.9 percent from a peak of 35.3 percent.
It was the lowest headline inflation rate since October 2016 and the lowest core inflation rate since April 2016, CBE added.
In November 2016 the CBE floated the pound, which quickly lost over half its value. Since then the pound has been slowly appreciating and was trading at 17.62 to the U.S. dollar today, up 1.1 percent this year but still down just under 50 percent since before the float.
Meanwhile, Egypt’s economy grew by an annual rate of 5.3 percent in the fourth quarter of 2017, the sixth consecutive quarter of annual growth, for 2017 growth of 5.0 percent.
At the same time, unemployment is declining and fell to 11.3 percent in December, the lowest since December 2010.
“The pickup of economic growth was largely boosted by higher net external demand, due to more competitive exchange rates, followed by public domestic demand, which have more than offset lower private domestic demand,” CBE said.
The Central Bank of Egypt issued the following statement:
In its last meeting on February 15, 2018 the MPC began to ease its tight stance on interest rates that successfully managed to tame monthly inflation.
Annual headline and core inflation rates continued to decline to record 14.4 percent and 11.9 percent in February 2018, after peaking in July 2017 at 33.0 percent and 35.3 percent, respectively. The headline and core annual inflation rates thereby registerd the lowest since October and April 2016, respectively.
Real GDP growth continued to improve for the fifth consecutive quarter to record 5.3 percent in December 2017 and 5.0 percent during 2017, the highest economic growth since 2010. This coincided with the narrowing of the unemployment rate to 11.3 percent in December 2017, the lowest since December 2010.
The pickup of economic growth was largely boosted by higher net external demand, due to more competitive exchange rates, followed by public domestic demand, which have more than offset lower private domestic demand. Output growth by economic activity was relatively diversified, and continued to be mostly supplied by the private sector.
Cutting key policy rates today remains consistent with tight real monetary conditions and with achieving the inflation target of 13 percent (±3 percent) in 2018 Q4 and single digits thereafter.
Domestic risks surrounding the inflation outlook include the evolution of inflation expectations, the timing and magnitude of potential subsidy-reform measures, as well as demand-side pressures. Risks from the global economy are crude oil price developments and the pace of tightening financial conditions.
The MPC closely monitors all economic developments and will not hesitate to adjust its stance to achieve its mandate of price stability over the medium term.”
