Egypt's central bank keeps interest rates unchanged

CAIRO – 3 April 2020: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided Thursday, April 2, to keep overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 9.25 percent, 10.25 percent, and 9.75 percent, respectively.

Upon this decision, the discount rate was also kept unchanged at 9.75 percent.

The Committee stated that CBE moved preemptively, within its mandate, to support economic activity especially businesses and households. “This should support employment in these exceptional times which is essential in order to avoid a prolonged slowdown in economic activity and help speed the recovery once the outbreak is contained,” it commented.

As an exceptional decision, the MPC decided, on Mar. 16, to cut the overnight deposit rate, the overnight lending rate, and the rate of the main operation in an emergency meeting by 3 percent or 300 basis points.

This decision comes as a part of actions and measure took by CBE to curb the effect of the virus outbreak; extending the loan maturities for the major companies 6 months without any fines.

Upon this decision, the overnight deposit rate, the overnight lending rate, and the rate of the main operation are cut to reach 9.25 percent, 10.25 percent, and 9.75 percent, respectively. Moreover, credit and discount rates are now at 9.75 percent from 12.75 percent.

Meanwhile, MPC referred to the inflation rates in February stating, “Annual headline urban inflation declined to 5.3 percent in February 2020 from 7.2 percent in January 2020, supported by favorable base effect as well as contained underlying inflationary pressures. The decline of annual headline inflation was mainly driven by lower annual food contribution, mainly volatile food items, while the contribution of non-food items remained broadly stable.”

“Annual core inflation declined to 1.9 percent in February 2020 from 2.7 percent in January 2020, the lowest rate on record.” It added.

To clarify, Egypt targets an inflation rate of 10.5 percent in fiscal year of 2019/2020 and was targeting 13 percent in 2018/2019 budget while if the crisis continued until December 2020, inflation rate is expected to increase to 9.8 percent.

According to MPC, Real gross domestic product (GDP) had stabilized around 5.6 percent in the second half of 2019, which was the same level recorded in FY2018/19.

Meanwhile, the unemployment rate had recorded 8 percent in the fourth quarter of 2019, compared to 7.8 percent in the third quarter of 2019. Nevertheless, employment had been recovering on a quarterly basis for the fourth consecutive quarter.

“However, the COVID-19 outbreak as well as the associated containment measures induce a considerable disruption to economic activity and financial markets globally. Furthermore, international oil prices witnessed substantial decline affected by weaker demand in addition to the lack of agreement between OPEC and non-OPEC members on additional production cuts,” it added.