CBE reveals reasons for holding interest rates in its sixth meeting of 2023

The Central Bank of Egypt disclosed the reasons for keeping interest rates unchanged during a meeting of the Monetary Policy Committee, the fourth time in 2023.

The Monetary Policy Committee's report indicated that globally, expectations for commodity prices, especially energy prices, continued to rise compared to the forecasts presented during its August 2023 meeting.

Expectations for global inflation rates in the short term have also risen, surpassing the targeted rates, posing a challenge to global price stability. Consequently, it is expected that key interest rates will remain elevated.

Furthermore, despite increased expectations for global economic activity compared to what was presented in the previous committee meeting, these expectations may be negatively impacted if economic slowdown persists, especially in the Eurozone and China.

On the local front, the report noted that the real economic activity growth rate remained unchanged at 3.9% during the first quarter of 2023 compared to the fourth quarter of 2022.

As a result, the average GDP growth rate recorded 4.1% during the first nine months of the fiscal year 2022/2023.

Detailed data up to the first quarter of 2023 indicated that economic activity during the first nine months of the fiscal year 2022/2023 was driven by positive contributions from wholesale and retail trade, agriculture, construction, and manufacturing.

It is expected that the GDP growth rate will slow down during the fiscal year 2022/2023 compared to the previous fiscal year, in line with early indicators for the second quarter of 2023, with a gradual recovery thereafter.

Regarding the labor market, the unemployment rate decreased to 7.0% during the second quarter of 2023 compared to 7.1% in the previous quarter, primarily due to an increase in the number of employed individuals outpacing labor force growth.

The report indicated that the annual urban inflation rate increased, reaching 37.4% in August 2023, up from 36.5% in July 2023.

On the other hand, the core inflation rate saw a slight slowdown for 2 consecutive months, recording 40.7% in July 2023 and 40.4% in August 2023, compared to 41.0% in June 2023.Although the annual inflation rate for food items continued to rise, it was driven by increases in vegetable and fresh fruit prices, unlike previous months, which were influenced by rising basic food commodity prices.

The monthly changes for both July and August 2023 reflected disruptions in supply chains and unfavorable weather conditions that contributed to the seasonal increase in agricultural product prices.

Overall, economic indicators, including recent inflation data, were consistent with the forecasts presented to the Monetary Policy Committee during its August 2023 meeting. Therefore, the committee decided to keep the central bank's key interest rates unchanged.

The committee will continue to assess the impact of the restrictive monetary policy measures taken and their effects on the economy based on the forthcoming data.

The committee emphasizes that the path of key interest rates depends on expected inflation rates, not prevailing inflation rates.

The Monetary Policy Committee will continue to monitor economic developments and forecasts in the coming period.

In its statement, the committee clarified that it will not hesitate to use all available monetary policy tools to maintain the restrictive monetary conditions to achieve the targeted inflation rates of 7% (± 2 percentage points) on average in the fourth quarter of 2024 and 5% (± 2 percentage points) on average in the fourth quarter of 2026.