The Monetary Policy Committee of the Central Bank of Egypt decided, at its meeting on Thursday, August 18, 2022, to keep the overnight deposit and lending rates and the central bank’s main operation rate at the level of 11.25%, 12.25% and 11.75%, respectively, and the credit and discount rate were kept at the same level. Level 11.75%.
Globally, global economic activity has been slowing due to the effects of the Russia-Ukraine crisis, and the increase in geopolitical risks in Southeast Asia has heightened uncertainty in the global economic outlook. Despite the decline in severity compared to previous months, global financial conditions continued to be constrained, as central banks abroad continued to tighten monetary policies by raising interest rates and reducing asset purchase programs to contain high inflation rates in their countries. International prices of some basic commodities have fallen relatively, such as oil and wheat, following reaching their peak following the outbreak of the conflict between Russia and Ukraine.
Preliminary data indicate that the real GDP growth rate is higher than expected, as it recorded 6.2% during the fiscal year 2022/2021, compared to 3.3% during the previous fiscal year. The growth in real GDP, according to detailed data for the first nine months of the fiscal year 2022/2021, was mainly driven by the contribution of the private sector, in particular the contribution of the non-oil manufacturing industries, tourism as well as trade. At the same time, the growth in the public sector was driven by the contribution of the natural gas extraction sector, the Suez Canal and the general government. In addition, most of the initial indicators recorded positive growth rates during the second quarter of 2022. It is expected that economic activity will continue to be supported by the positive impact of the structural reforms planned to be implemented by the government. However, the outlook for GDP growth remains lower than previously expected. This is partly due to the negative repercussions of the Russian-Ukrainian crisis.
With regard to the labor market, the unemployment rate stabilized at 7.2% during the second quarter of 2022. This is due to the increase in the number of workers and the labor force to the same extent, limiting the contribution of each other.
The annual general urban inflation rate during July 2022 resumed its upward trend that it had taken since December 2021, to record 13.6%, following it slowed in June 2022 to 13.2%. At the same time, the annual core inflation rate, which is calculated by excluding the group of fresh vegetables and fruits, as well as goods and services whose prices are set administratively, was 15.6% in July 2022, compared to 14.6% in the previous month. The rise in July 2022 was driven by the increase in the prices of basic food commodities, consumer goods and services as a result of the seasonal impact of the blessed Eid al-Adha and the repercussions of the Russian-Ukrainian crisis, as well as the indirect effects resulting from the increase in the prices of petroleum products.
The Monetary Policy Committee’s decision to keep the basic interest rates at the Central Bank unchanged is consistent with achieving the goal of price stability in the medium term. It is worth noting that monetary policy tools are used to control inflation expectations, reduce inflationary pressures from the demand side and the secondary effects of supply shocks, which may lead to relatively higher inflation rates than the target rates.. Given the initial effects of the supply shocks at present, it is expected that inflation rates will temporarily rise relative to the central bank’s target inflation rate of 7% (± 2 percentage points) on average during the fourth quarter of 2022, provided that inflation rates will gradually decline.
The committee will continue to evaluate the impact of its decisions on inflation expectations and macroeconomic developments in the medium term, taking into account its decisions during its previous meetings to raise basic interest rates. The Monetary Policy Committee stresses that achieving low and stable inflation rates in the medium term is a prerequisite for achieving sustainable growth rates. The Committee also stresses that the current interest rates depend mainly on the expected inflation rates and not the prevailing rates.
The committee will closely follow all economic developments and will not hesitate to use all its monetary tools to achieve the goal of price stability in the medium term.