Egypt's Central Bank Holds Interest Rates Steady Amid Economic Softening
In a move that surprised no one, Egypt's central bank decided to keep its overnight interest rates unchanged on Thursday, citing a decrease in inflation pressures alongside a slowdown in economic growth.
The lending rate remains at 28.25%, with the deposit rate at 27.25%, according to a statement released by the bank. This marks the third consecutive time that rates have been left untouched since a 600 basis point hike earlier this year.
Analysts had largely predicted this outcome, with only one out of 15 analysts expecting a 100 basis point cut. The central bank's monetary policy committee noted in a statement that inflationary pressures have been easing, with both headline and core inflation declining for the fifth month in a row.
Despite ongoing challenges such as the impact of the coronavirus, Russia's invasion of Ukraine, and the conflict in Gaza, Egypt's inflation rate dropped to 25.7% in July. This marks the first time the real interest rate has been positive since January 2022, with inflation gradually decreasing from its peak of 38% in September.
However, economic growth has softened, with real GDP growth slowing to 2.2% in the first quarter of 2024 compared to 2.3% in the previous quarter. The MPC attributed this decline to disruptions in the Red Sea maritime trade affecting the service sector.
Looking ahead, the MPC expects economic growth to gradually pick up in the current fiscal year, which began on July 1. They also anticipate a significant decline in inflation in the first quarter of 2025, noting that inflation is on a downward trend due to improving inflation expectations.
In conclusion, Egypt's central bank decision to keep interest rates steady reflects a balancing act between managing inflationary pressures and supporting economic growth. This stability provides some relief for investors and consumers, signaling a cautious optimism for the country's financial future.