Egypt’s central bank left its key interest rates unchanged for the second time and reiterated its view that keeping rates steady is consistent with achieving its inflation target of 9 percent, plus/minus 3 percentage points in the fourth quarter of this year.
The Central Bank of Egypt (CBE) left its overnight deposit rate at 9.25 percent, the overnight lending rates at 10.25 percent, and the rate on its main operation and discount rate at 9.75 percent.
CBE’s monetary policy committee added its decision to maintain rates reflected the 300 basis point rate cut at an unscheduled policy meeting on March 16.
At its previous monetary policy meeting on April 2 CBE also maintained rates, saying this was consistent with achieving its inflation target.
Since February 2018, when CBE began easing its policy as inflationary pressures began to subside, key interest rates have been cut by 9.50 percentage points.
Egypt’s inflation rate rose to 5.9 percent from 5.1 percent in March, with CBE saying this was due to unfavorable base effect from muted prices increases last year and higher prices in April 2020 due to the outbreak of COVID-19 and Ramadan.
The pickup in inflation led analysts to expect CBE to keep rates steady today.
Egypt’s tourism sector has been hit hard by the spread of the coronavirus and CBE said leading indicators reflected a slowdown in March and April following a broad improvement in January and February.
“Nevertheless, the diversity of the economy provides some cushion given the resilience of some sectors,” CBE said.
On Monday the International Monetary Fund’s (IMF) executive board approved assistance of US$2.77 billion so Egypt can meet its urgent balance of payment needs from the pandemic.
“The pandemic and global shock pose an immediate and severe economic disruption that could negatively impact Egypt’s hard-won macroeconomic stability if not addressed,” IMF said.
The Central Bank of Egypt issued the following press release:
Annual headline urban inflation increased to 5.9 percent in April 2020 from 5.1 percent in March 2020 due to a combination of unfavorable base effect stemming from muted price increases in April 2019 as well as higher prices increases in April 2020 which is broadly attributed to the impact of the outbreak of COVID-19 as well as a stronger seasonal factor due to Ramadan. Annual headline inflation in April 2020 was driven by higher annual food contribution, mainly core food items, which more than offset lower annual contribution of non-food items. Accordingly, annual core inflation increased to 2.5 percent in April 2020 from 1.9 percent in March 2020.
Real GDP growth continued to stabilize around 5.6 percent in 2019 Q4, with the recovery in public domestic demand offsetting the moderation in private domestic demand, and the pickup in consumption offsetting the slowdown in investments. Meanwhile, leading indicators showed broad improvement on average in January and February 2020, before reflecting a slowdown in economic activity in March and April 2020. Nevertheless, the diversity of the economy provides some cushion given the resilience of some sectors.
Globally, economic activity and employment have deteriorated significantly, which weighed on the outlook with risks mainly tilted to the downside. This was also reflected in the weakness of international oil prices, despite production cuts by major producers.
Against this background, and following the reduction of 300 basis points during the unscheduled MPC meeting on March 16, 2020, the MPC decided that keeping key policy rates unchanged remains consistent with achieving the inflation target of 9 percent (±3 percentage points) in 2020 Q4 and price stability over the medium term.
The MPC closely monitors all economic developments and will not hesitate to utilize all available tools to support the recovery of economic activity, within its price stability mandate.”
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