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Urgent | Central Bank of Egypt announces stabilization of interest rates for the first time in 2024

Urgent |  Central Bank of Egypt announces stabilization of interest rates for the first time in 2024

The Bank’s Monetary Policy Committee decided Egyptian Central Bank At its meeting on Thursday, May 23, 2024, it decided to maintain the overnight deposit and loan rates and the rate of the Central Bank’s main operations at 27.25%, 28.25% and 27, respectively. 75%.

It also decided to maintain the credit and discount rates at 27.75%, and this decision reflects the latest developments and expectations at the global and local levels since the previous meeting of the Monetary Policy Committee.

Reasons for fixing the interest rate

The Monetary Policy Committee report said: “Globally, the outlook for economic growth remained positive, although expected rates were below the historical average. Despite falling inflation rates globally, major central banks have continued their restrictive monetary policies. ensure that the inflation rate converges towards its target levels. With regard to global commodity prices, particularly energy, the medium-term outlook for supply and demand remains uncertain, especially as supply remains vulnerable to shocks resulting from geopolitical tensions in emerging economies. The credit risk outlook has improved amid expectations of monetary policy easing in advanced economies.

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She continued: “At the local level, the real gross domestic product recorded a growth rate of 2.3% during the fourth quarter of 2023, with the first half of the 2023/2024 financial year recording a growth rate of 2, 5% versus 4.2%. during the corresponding period of the previous year. slow down in the 2023/2024 financial year compared to the previous financial year. Recover from the 2024/2025 financial year. »

Inflationary pressures continued to decline, particularly with headline and core inflation peaking at 38.0% in September 2023 and 41.0% in June 2023, respectively. The downward trend in inflation continued despite its unexpected rise in February 2024, with headline inflation and core inflation falling to 32.5% and 31.8% in April 2024, respectively. The positive effect of the base period has contributed to reducing inflation rates in 2024 due to periods of high inflation in 2023. The annual general inflation rate has been mainly driven by the contribution of food products since December 2022 , although the rise in non-food inflation has limited the continued decline in food commodity inflation since November 2023.

The latest inflation developments since the extraordinary meeting of the Monetary Policy Committee of the Central Bank of Egypt, corresponding to March 6, 2024, constitute an early indicator of the return of monthly inflation rates to their usual trend before March 2022. Expectations indicate that inflation will moderate over the course of 2024 as inflationary pressures recede, especially since it has currently peaked. Inflation is expected to decline significantly in the first half of 2025 due to the combination of several factors, including restrictive monetary policy, the unification of the foreign exchange market and the positive effect of the reference period.

In addition, several elements will contribute to achieving price stability, including significant foreign direct investment flows, a notable improvement in the external financing environment and their positive impact on the formation of foreign exchange reserves, in addition to growing domestic and foreign demand for U.S. dollar-denominated assets. the Egyptian pound. Recent developments in the exchange rate will favor a tightening of monetary conditions, which will stabilize inflationary expectations and limit the outlook for future inflation.

In light of the above, and taking into account the previous decisions of the Monetary Policy Committee to increase base interest rates by 800 basis points during the first quarter of 2024, the Committee considers that maintaining interest rates The central bank’s base interest rate unchanged is appropriate in the current period. The Monetary Policy Committee will continue to assess the impact of its decisions on the economy in light of current restrictions in monetary conditions and in light of data received in the coming period.

Risks surrounding the expected evolution of inflation

The report indicates that, despite the above, there are risks surrounding the expected development of inflation, including the escalation of current geopolitical tensions, adverse climatic conditions, locally and globally, in addition to control measures public finances.

The Committee notes that it will continue to closely monitor economic developments and assess the risks associated with inflation expectations, emphasizing that the expected movement in policy rates of return depends on expected inflation rates and not on inflation rates. current inflation. The Committee will not hesitate to use all available monetary policy tools to maintain restrictive monetary conditions with the aim of sustainably reducing monthly inflation rates and achieving price stability in the medium term.

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