Cairo: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to maintain the CBE’s overnight deposit rate, overnight lending rate, and the rate of the main operation at 27.25 percent, 28.25 percent, and 27.75 percent, respectively, during its meeting on Thursday. The Committee also opted to keep the discount rate unchanged at 27.75 percent.
According to State Information Service Egypt, while the global economic growth and inflation outlook remains uncertain, certain central banks in both advanced and emerging market economies have gradually reduced their policy rates. Others have chosen a cautious approach due to ongoing global economic developments. Though economic growth remains stable and is expected to continue at its current pace, it has yet to reach pre-pandemic levels.
This economic outlook faces risks from the existing restrictive monetary stance, which could affect demand, and the revival of protectionist policies impacting global trade. Recent volatility in global commodity prices, particularly grain, suggests a potential price increase over the medium term, further compounded by geopolitical tensions and trade policy disruptions.
Domestically, preliminary indicators for Q4 2024 show faster economic growth compared to the 3.5 percent in Q3 2024, indicating a continued recovery. Real GDP growth in Q3 2024 was driven by manufacturing and transportation sectors. Although estimates suggest real GDP is below potential, supporting a disinflation path in the short term, the economy is expected to reach full potential by the end of FY 2025/26. The unemployment rate decreased to 6.4 percent in Q4 2024 from 6.7 percent in Q3 2024.
Annual inflation slowed in the latter half of 2024, stabilizing at 24.0 percent in January 2025. Core inflation remained stable, recording 22.6 percent in January 2025. While food inflation continues to decline, non-food inflation averages around 25.5 percent, reflecting the gradual easing of previous shocks.
Inflation risks have increased compared to the previous MPC meeting due to global and regional uncertainties, including U.S. protectionist trade policies and geopolitical tensions. However, headline inflation is expected to decline significantly in Q1 2025, aided by monetary policy tightening and a favorable base effect. While the pace of decline may slow due to fiscal measures, underlying inflation is anticipated to return to its historical average over the medium term.
The MPC believes current policy rates are suitable for maintaining a tight monetary stance to ensure the projected disinflation path and anchor inflation expectations. The Committee will evaluate the timing of starting an accommodative cycle on a meeting-by-meeting basis, considering forecast trajectories and risk balances. The MPC will continue to monitor economic and financial developments, ready to use all available tools to achieve its price stability mandate, including managing demand-side pressures and second-round effects from supply shocks.