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Central Bank of Egypt explains reasons for fixing interest rates for 6th consecutive time - Daily News Egypt

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Central Bank of Egypt explains reasons for fixing interest rates for 6th consecutive time

Initial indicators show continued improvement in most economic sectors: Monetary Policy Committee

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided, during its meeting last Thursday evening, to keep the basic interest rates unchanged for the sixth consecutive time.

The interest rates at CBE are 8.25% for deposit, 9.25% for lending, and 8.75% for credit and discount rates and the main operation. This is the level they reached in November 2019.

The committee said that the annual urban inflation rate witnessed a slight increase to 4.9% in June 2021 from 4.8% in May 2021, as a result of the negative impact of the base period for the second month in a row.

The negative impact of the base period on annual rates of inflation is expected to continue in the near term, and the slight rise in the annual general inflation rate in June 2021 is due to the increase in the annual rate of food commodity inflation to 3.4% from 1.7% in May 2021, to reflect the increase in the annual contribution to food prices, whether subsidized food commodities or basic food commodities.

According to the committee, this was limited by the decline in annual inflation of non-food commodities to 5.6% in June 2021 from 6.3% in May 2021, which is the lowest rate recorded since June 2014. At the same time, the annual rate of core inflation rose to 3.8% in June 2021 compared to 3.4% in May 2021.

Moreover, the preliminary data indicated that the real GDP recorded a growth rate of 2.8% during the fiscal year 2020/2021, compared to 3.6% during the previous fiscal year, to reflect the impact of the spread of the Coronavirus pandemic and the precautionary measures on economic activity for a whole year.

On the other hand, according to the committee, the output growth at the cost of production factors continued to rise according to the detailed data during the first quarter (Q1) of 2021, supported by the positive contributions of the sectors of trade, construction, and communications, in addition to the natural gas extraction sector. Preliminary indicators show continued improvement in most economic sectors.

On the other hand, according to the committee, the unemployment rate stabilized at 7.4% during Q1 of 2021, compared to 7.2% during Q4 of 2020.

At a global level, the committee indicated that economic activity continues to recover, albeit to varying degrees at the level of different sectors and countries, as a result of the disparity in vaccination rates against the Coronavirus between countries. In addition, the recovery of global economic activity depends on the updates in the virus and the ability of some countries to contain its spread, especially with the emergence of new strains of the virus.

It expected the continuation of appropriate financial conditions and supportive of global economic activity in the medium term. At the same time, international oil prices rose, driven by developments in supply and demand. International prices for foodstuffs and some other primary commodities continued to record high levels compared to previous years, despite their recent decline.

MPC believes that the basic interest rates at CBE are appropriate and consistent with achieving the target inflation rate of 7% (±2%) on average during Q4 of 2022 with price stability in the medium term.

Moreover, MPC will closely follow all economic developments and risk balances, and will not hesitate to use all its tools to support the recovery of economic activity, provided that inflationary pressures are contained.

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