Business Hub _ Cairo
interest rate hike
The Monetary Policy Committee of the Central Bank of Egypt decided in its meeting today to raise the overnight deposit and lending rates and the central bank’s main operation rate by 2% to reach 11.25%. 12.25% and 11.75%, respectively, The credit and discount rate was also raised by 2% to 11.75%.
The Central Bank of Egypt considered that the decision to raise interest rates by 2% was necessary to control inflationary pressures, and is consistent with achieving the goal of price stability in the medium term, as monetary policy tools are used to control inflation expectations, and reduce inflationary pressures from the demand side and secondary effects. supply shocks because of their impact on inflation expectations and exceeding the previously announced target rates.
Looking at the initial effects of supply shocks now, Temporarily, it is expected that inflation rates will be relatively higher than the central bank’s target inflation rate of 7% (± 2 percentage points) on average during the fourth quarter of 2022. So that the inflation rates will gradually decrease again.
The Monetary Policy Committee stresses that achieving low and stable inflation rates in the medium term is a prerequisite for supporting the purchasing power of the Egyptian citizen and achieving high and sustainable growth rates. The Committee also stresses that the current interest rates depend mainly on the expected inflation rates and not the prevailing rates.
Reasons for making a decision
The CBE statement indicated that the decision was taken based on several factors, including that global economic activity is slowing down due to the continuation of the Russian-Ukrainian war, as the trade sanctions imposed on Russia and the resulting bottlenecks in the supply and supply chains have led to a rise in global prices of basic commodities. Such as world prices for oil and wheat. This is in addition to the impact on the global supply of wheat due to bad weather and low yields in certain areas. At the same time, global financial conditionsTightening monetary policies by raising interest rates and reducing asset purchase programs to contain high inflation rates in their countries. In addition, the recently imposed lockdowns in China are raising concerns about the potential to exacerbate disruptions to global supply and supply chains. were constrained, as central banks abroad continued to
Effects of the Russian-Ukrainian war
The Central added that before the outbreak of war between Russia and Ukraine, Preliminary data indicated that domestic economic activity would continue to rise during the fourth quarter of 2021. Whereas, the real GDP recorded a growth rate of 8.3%, This is the second highest growth rate since the third quarter of 2002. This was partly supported by the recovery in growth in the tourism, construction, and industrial sectors, in addition to the positive impact of the base period resulting from lower growth rates in the same period of 2020 as a result of the measures to contain the Corona pandemic.
economic performance indicators
Most of the main indicators of economic activity have recently begun to return to their normal pace. This trend is expected to continue in the near term. Parallel to the fading of the positive effect of the base period. In the medium term, Economic activity is expected to witness a slowdown in growth compared to previously expected rates, This is partly due to the negative fallout from the Russo-Ukrainian War.
With regard to the labor market, The unemployment rate decreased during the first quarter of 2022, recording 7.2%. This decrease is due to the increase in employment rates which limited the increase in the workforce.
The annual general inflation rate rose to 13.1% in April 2022, from 10.5% in March 2022, This is the highest rate since May 2019. The annual rate of core inflation (which excludes fresh vegetables and fruits and goods and services whose prices are set at an administrative level) continued to rise to 11.9% in April 2022, from 10.1% in March 2022, This is the highest rate recorded since April 2018. This increase was mainly driven by the rise in food prices. Which was also supported by the increase in the prices of non-food commodities. While both food commodities and non-food commodities were affected by the depreciation of the Egyptian pound as of March 21, 2022 and its seasonal pattern, However, there are many other factors that contributed to the rise in food prices. like unfavorable weather conditions, high fertilizer prices, Which led to a shock display in tomatoes. In addition to the impact of the Russian-Ukrainian war on wheat prices, and prices of other food commodities, The continuation of the seasonal impact of the month of Ramadan contributed, And the impact of the festive season during April 2022 in increasing the prices of other basic food commodities.