Why did CBE keep interest rates unchanged?

The Monetary Policy Committee (MPC) decided, Thursday to keep the Central  Bank of Egypt’s (CBE) interest rates unchanged despite the expectations that went towards raising the rates by 50 or 100 basis points.

 

The overnight deposit rate, overnight lending rate, and the rate of the main operation were kept on hold at 11.25 percent, 12.25 percent, and 11.75 percent, respectively.  The discount rate was also kept unchanged at 11.75 percent.

 

According to the MPC, this decision was supported by the growth of the domestic economic activity by a preliminary figure of 6.2 percent in fiscal year 2021/22, compared to 3.3 percent in the previous fiscal year.  “This reflects stronger than previously expected growth,” it pointed out.

 

According to the announced data in the MPC’s statement, the latest available data for the first nine months of the fiscal year shows that GDP growth was mainly driven by the private sector, particularly non-petroleum manufacturing, tourism, and trade. Meanwhile, public sector activity was supported by natural gas extractions, Suez Canal and the general government. 

 

“Moreover, most leading indicators remained in positive territory in 2022 Q2,” it added.

 

The committee also kept in mind the stabilization of the unemployment rate at 7.2 percent in 2022 Q2, commenting that the stability comes in light of both employment and the labor force figures increasing by similar magnitudes, offsetting one another. 

 

As for the inflation rate, the MPC attributed the hike of the rates to the seasonal impact of Eid Al-Adha, the repercussions of the Russo-Ukrainian conflict, as well as, the indirect effects of higher prices of fuel products.