Egypt’s central bank left its key interest rates unchanged, as expected, and lowered its inflation target to an average of 9.0 percent, plus/minus 3 percentage points, during the fourth quarter of 2020, from the target of 13 percent for the fourth quarter of this year, which was set in May 2017.
The Central Bank of Egypt (CBE), which has maintained its rates since March, added that exogenous factors outside the scope of monetary policy may lead to temporary deviations from the new inflation target that was set as inflation continues to gradually decline.
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.
Egypt’s headline inflation rate eased to 15.7 percent in November from 17.7 percent in October due to a favorable comparison and the partial reversal of a rise in some vegetable prices.
Core inflation fell to 7.9 percent in November from 8.9 percent in October, the lowest rate since February 2016.
“Current policy rates and the inflation outlook remain in line with achieving the targeted disinflation path,” CBE said, adding it will not hesitate to adjust its policy stance to achieve its mandate of price stability.
Inflation in Egypt soared early last year and hit almost 33 percent in July 2017 in response to a rise in regulated prices, such as electricity, tobacco and other fees, as the government slashed subsidies to energy and raised taxes in connection with a US$12 billion International Monetary Fund (IMF) aid package.
In addition, the CBE in November 2016 floated the pound, which quickly lost more than half of its value, boosting import prices and inflation.
Analysts are not expecting the CBE to begin cutting its rate until inflation calms down after further government subsidy cuts next year.
Egypt’s economy has been growing steadily for the last 6 quarters with annual growth of 5.4 percent in both the second and first quarters.
In the third quarter of this year, CBE said the unemployment rate had stabilized at 10.0 percent and while private domestic demand and net exports declined, public demand rose.
The CBE also said Egypt’s finance ministry was targeting a primary surplus of 2.0 percent of gross domestic product in the 2018/19 fiscal year, which began July 1, up from a preliminary 0.1 percent in the previous year, and to maintain this surplus thereafter.
Since May Egypt’s pound has been relatively steady and was trading at 17.89 to the U.S. dollar today, down 0.3 percent this year.
The Central Bank of Egypt issued the following statement:
Headline inflation declined to 15.7 percent in November 2018 from 17.7 percent in October 2018, due to the partial reversal of the supply shock related to select vegetables and a favorable base effect. Meanwhile, core inflation declined to 7.9 percent in November 2018 from 8.9 percent in October 2018, recording the lowest rate since February 2016.
Real GDP growth stabilized at 5.4 percent in 2018 Q2, after rising for six consecutive quarters. The positive contribution of private domestic demand and net exports declined, while that of public domestic demand increased. The unemployment rate also stabilized at 10.0 percent in 2018 Q3.
Global financial conditions continued to tighten, while global trade tensions continued to weigh on the global outlook. International oil prices recently declined yet remain subject to volatility due to potential supply-side factors.
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 0.1 percent in the previous year, and to maintain this surplus thereafter.
In account of the above, and in support of macroeconomic stability, the CBE’s inflation target has been set at 9 percent (±3 percent) on average during 2020 Q4, down from 13 percent (±3 percent) on average during 2018 Q4. Exogenous factors that are outside the scope of monetary policy may lead to transitory deviations from pre-announced target rates.
Current policy rates and the inflation outlook remain in line with achieving the targeted disinflation 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.”