Egypt holds rate as inflation nears fourth quarter target

August 16, 2018

By CentralBankNews.info
     Egypt’s central bank left its key policy rates unchanged for the third time, saying the current rates are consistent with the outlook for inflation and achieving the target of 13 percent, plus/minus 3 percentage points, in the fourth quarter of this year.
     The Central Bank of Egypt (CBE) has kept its key rates steady since the last cut in March while inflation continues to decelerate and has been below the upper limit of the target range since February.

      Egypt’s inflation rate has come down sharply since a record high of almost 33 percent in July 2017 though the headline rate rose slightly in June and July due to higher regulated prices, such as electricity, tobacco and government fees, and some volatile food items.

      In July consumer price inflation eased to 13.5 percent from 14.4 percent in June.
      Core inflation, however, has continued to fall for 12 months in a row and fell further to 8.54 percent in July, the lowest rate since March 2016.
       Inflation surged last year after the government slashed subsidies to energy and raised taxes in connection with a US$12 billion International Monetary Fund (IMF) aid package. 
       In November 2016 the central bank also floated the pound, which quickly lost more than half its value, boosting import prices and thus inflation.
       In response the CBE raised its rates sharply but this year it has cut the rate by a total of 200 basis points following cuts in February and March.

       The CBE kept its overnight deposit rate, the overnight lending rate and the rate on the main operation at 16.75 percent, 17.75 percent and 17.25 percent, respectively.

       In May last year the CBE set a target for inflation of 13 percent, plus/minus 3 percentage points, for the fourth quarter of 2018 and then single digits thereafter after the temporary effect of fiscal supply shocks dissipates.
       The CBE said Egypt’s economy had stabilized in the second quarter of this year at the growth rate that was seen in the first quarter, driven by foreign demand and domestic investments.
       Egypt’s Gross Domestic Product expanded by an annual 5.4 percent in the first quarter of this year, up from 5.3 percent in the fourth quarter of last year, for the seventh consecutive quarter of accelerating growth.
       In July the IMF said Egypt’s economic situation had continued to improve and the near-term growth outlook is favorable, supported by a recovery in tourism and natural gas production.
       The IMF forecast economic growth in the 2017/18 financial year, which ended July 1, of 5.2 percent, rising to 5.5 percent in 2018/19.
        Average inflation was forecast to decline to 14.4 percent in 2018/19 from an estimated 20.8 percent last financial year.

      The Central Bank of Egypt issued the following statement:

“The Monetary Policy Committee (MPC) decided to keep the Central Bank of Egypt’s (CBE) overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 16.75 percent, 17.75 percent, and 17.25 percent, respectively. The discount rate was also kept unchanged at 17.25 percent.

The anticipated adjustment of regulated prices in the context of the fiscal reform program pushed headline inflation up to 13.5 percent in July 2018 from 11.4 percent in May 2018. On the other hand, core inflation continued to decline for the twelfth consecutive month to record 8.5 percent in July 2018, the lowest rate since more than two years.
Annual real GDP growth stabilized in 2018 Q2 at the 5.4 percent rate registered in the previous quarter, which was mainly driven by net foreign demand as well as by domestic investment. Job creation supported the decline of the unemployment rate to 9.9 percent in 2018 Q2, the lowest rate since 2010 Q4.
Global financial conditions continued to tighten, and trade tensions rose, pressuring among other factors currencies of select emerging economies. Furthermore, international oil prices continued to be subject to geopolitical risks.
The Ministry of Finance is targeting to achieve a primary surplus of 2.0 percent of GDP in fiscal year 2018/19, up from a preliminary 0.2 percent in the previous year.
The headline inflation outlook continued to be in line with the target path announced in May 2017, namely 13 percent (±3 percent) in 2018 Q4 and single digits after the temporary effect of fiscal supply shocks dissipates. The MPC decided that keeping key policy rates unchanged remains consistent with achieving this inflation outlook and target path.
The MPC closely monitors all economic developments and will not hesitate to adjust its stance to achieve its mandate of price stability over the medium term.”

     www.CentralBankNews.info


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