The Central Bank of Egypt (CBE) is anticipated to maintain its current overnight interest rates during the upcoming policy meeting on Thursday 21, December.
This decision is expected despite the forecast of economic reforms following President Abdel Fattah Al-Sisi’s recent re-election for a third six-year term, securing 89.6 percent of the vote.
Analysts suggest that Egypt is likely to postpone any potential interest rate hikes or currency devaluation until January.
Next Thursday marks the final meeting of the Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) for 2023, where deliberations will revolve around the future trajectory of the Bank’s key interest rates—crucial indicators shaping short-term pound interest rates.
During the preceding meeting on November 2, 2023, the committee opted to sustain the rates for the second consecutive time: 19.25 percent for deposits, 20.25 percent for lending, and 19.75 percent for the credit and discount rates and the main operation of CBE.
Analysts foresee no surprises in this forthcoming meeting, expecting the preservation of existing deposit and lending interest rates. This anticipation is grounded in the continuous deceleration of annual core inflation rates since September 2023, experiencing a decline of approximately 4.5 percent, from 40 percent in August 2023 to 35.9 percent in November.
Post the November 2 meeting, the MPC emphasized that the future of key interest rates hinges on expected inflation rates rather than current inflation rates. The committee reaffirmed its commitment to utilizing all available monetary policy tools to uphold restrictive monetary conditions, aiming for target inflation rates of 7 percent (±2 percent) on average during the fourth quarter of 2024 and 5 percent (±2 percent) on average during the fourth quarter of 2026. Additionally, ongoing assessment of the impact of the adopted restrictive monetary policy on the economy will be conducted based on forthcoming data.
Recent CBE announcements ndicated a decline in the annual core inflation rate to 35.9 percent in November 2023, down from 38.1 percent in October. The core consumer price index recorded a monthly rate of 1.0 percent in November, a decrease from 1.8 percent in October.
Globally, major central banks, including the U.S. Federal Reserve, the European Central Bank, and the Bank of England, chose to maintain their interest rates at the close of the previous week. Fed Chair Jerome Powell stated, “we’ve done enough,” signaling a pause in aggressive monetary tightening, acknowledging easing inflation and hinting at potential rate cuts in the future.
While the Bank of England resisted rate cut expectations, maintaining its key rate at 5.25 percent, Norway surprised with a rate hike. The ECB, amid a challenging economic outlook, is anticipated to be among the first major central banks to initiate rate cuts next year.
A year ago, Egypt entered into a USD 3 billion (EGP 92 billion) financial arrangement with the International Monetary Fund (IMF), committing to allowing its currency to float freely and expediting the sale of state assets. However, advancements on these fronts have been gradual, leading to delays in IMF disbursements.
Recent geopolitical developments, such as Israel’s war with Gaza in October, seem to have influenced a more lenient stance from multilateral lenders. The IMF announced this month that it has initiated discussions with Egypt regarding additional financing within the framework of the existing program.