CBE Keeps Interest Rates Unchanged Despite Rising Inflation

September 21, 2023


The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) announced Thursday to keep key interest rates unchanged at 19.25%, 20.25%, 19.75%, and 19.75% for overnight deposit rate, overnight lending rate, main operation rate, and discount rate, respectively.

In a statement, the MPC noted that while annual food inflation continues to rise, it is primarily driven by volatile items rather than core food products, as seen in previous months. Consequently, inflation trends in July and August 2023 are mainly attributed to the combined impact of disruptions in supply chains and adverse weather conditions, leading to seasonal price increases in agricultural goods.

The statement further indicated, “As incoming data since the August MPC meeting, including recent inflation figures, align with expectations, the MPC has opted to maintain the current policy rates. The committee will persist in quantitatively assessing the cumulative effects of previously implemented tightening policies on the overall economy.”

Keeping its upturn, Egypt’s annual headline inflation accelerated in August to 39.7% compared to 38.2% recorded in July, according to figures the Central Agency for Public Mobilization and Statistics (CAPMAS) released in September.

CAPMAS data also shows Egypt’s headline monthly inflation rose by 1.6% in August compared to the level reached in July.

On the other hand, Egypt’s core inflation –calculated by the Central Bank of Egypt (CBE)– slightly decelerated in August to 40.4% versus 40.7% seen a month earlier.

These readings are well beyond the CBE‘s target set at 7% (±2%) on average through the fourth quarter of 2024.

“It was necessary for the CBE to maintain the current interest rates as the total hike of 11% (1100 bps) it introduced to the interest rates have not contributed yet to curb the soaring inflation that hit a record level each month,” banking expert Ahmed Shawky explained to Business Monthly.

According to Shawky, the local market is actually suffering a supply crisis, thus counting on tightening the monetary policy by raising the interest rates is not effective in this case.

He also added that raising the interest rates in the time being would, subsequently, increase the cost of the services of the local debt, which would also raise the budget deficit as well.

CBE’s MPC is scheduled to convene two more times in 2023, on 2 November and 21 December.