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The Monetary Policy Committee of the Central Bank of Egypt decided, at its meeting on Thursday, December 24, 2020, to keep the deposit and overnight loan rates and the central bank’s main operating rate at 8.25%, 9.25% and 8.75 %, respectively, as well as maintaining the credit and discount rate at the 8.75% level.
The “Al-Ahram Gate” was published two days ago by experts, that the general trend is towards fixing the interest rate.
The bank said that the annual headline inflation rate rose for the third consecutive month in urban areas to 5.7% in November 2020 from 4.5% in October 2020, due to the increase in the annual headline inflation rate driven mainly by the increase in the annual contribution of food products since September 2020.
The rise in headline inflation in November 2020 reflected a temporary supply shock in tomato prices. At the same time, the annual core inflation rate rose slightly to 4.0% in November 2020 compared to 3.9% in October 2020, indicating continued containment of inflationary pressures.
The average headline inflation rate is expected to record one-off rates below the 6.0% level during the fourth quarter of 2020, and the degree of potential deviation from the target rates depends mainly on the degree of lower tomato prices after it ends. the shock, in addition to the change in other items.
The Central Bank of Egypt proactively took a set of measures, starting with the meeting of the emergency monetary policy committee on March 16, 2020, in which it decided to reduce the basic interest rates of the Central Bank of Egypt by 300 points. basic measures as an exceptional measure, which helps to support economic activity in all its sectors, especially the public and private business sector. And the family sector.
In addition to the initiatives launched by the Central Bank of Egypt to depend on local production and maintain low unemployment rates, which was followed by the reduction of the Central Bank’s basic interest rates by 50 basis points both in the meetings of 24 September as of November 12, 2020, in light of the continued containment of inflationary pressures expected in the long term. Average.
As a result, the rate of return on deposits and overnight loans and the central bank’s main operating rate have fallen by 400 basis points since the beginning of the year, helping to boost economic activity.
The real GDP growth rate was initially recorded at 0.7% during the third quarter of 2020, compared to negative 1.7% during the previous quarter of the same year.
The growth rate was initially recorded at 3.6% during the 2019/2020 fiscal year, compared to 5.6% during the prior fiscal year. The slowdown in the growth rate was due to the Corona pandemic and the containment measures that accompanied it. Most of the initial indicators on the demand side continued to gradually recover during October and November 2020, compared to the weakness recorded during the second quarter of the same year.
The unemployment rate fell to 7.3% during the third quarter of 2020, the lowest rate in history, compared to 9.6% during the second quarter of the same year.
At a global level, economic activity remains weak despite the easing of global financial conditions, as a consequence of the spread of the second wave of the Corona pandemic, the return of the closure and the tightening of precautionary measures that will negatively affect the prospects for the global economy in the short term. On the Corona pandemic, it may alleviate the prevailing uncertainty in the medium term, and at the same time, world oil prices have risen slightly recently.
In confirmation of the Central Bank’s continued support for the stability of the Egyptian economy, the target inflation rate was set on average during the fourth quarter of 2022 at 7% ± (2%) compared to 9% ± (3%) on average during the fourth quarter of 2020. This Monetary policy tools will continue to be used to control inflation expectations and contain inflationary pressures on the demand side and the secondary effects of supply shocks, which can lead to a deviation of inflation from target rates, and inflation may deviate from target rates due to factors beyond the scope of the influence of monetary policy.
The overall real growth rate of the Egyptian economy is expected to recover gradually, in parallel with continued support for structural reforms in economic activity. On the other hand, annual inflation rates are expected to be affected by the negative impact of the base period during 2021, but will continue to register rates close to half of the target rate range of 7% during 2022.
Consequently, the Monetary Policy Committee decided to keep the basic rates of return unchanged, which is consistent with achieving the target inflation rate of 7% ± (2%) on average during the fourth quarter of 2022 and price stability in the medium term. The committee asserts that the path of return rates depends on future inflation rate expectations, not current prevailing rates.
The Monetary Policy Committee will closely monitor all economic developments and risk balances and will not hesitate to use all its tools to support the recovery of economic activity, provided inflationary pressures are contained.
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