Egypt: The Central Bank of Egypt has recently issued a statement regarding the raised base return of the Monetary Policy Committee by 200 basis points. The decision came into motion during a meeting held at the central bank of Egypt on Thursday, March 30, 2023.
As per the updates, the officials stated that the monetary policy committee decided to raise the price of the return of deposits and loans for one night and the central bank key operating rate by 200 basis points to 18.25%, 19.25% and 18.75%, respectively. 200 basis points also raised the price of credit and discount to 18.75%.
Globally, the forecasts of global commodity prices have dropped sharply compared to those presented to the Monetary Policy Committee at its previous meeting. And yet, the uncertainty associated with those price predictions has continued, said the officials.
Furthermore, the most important is on the horizons of global supply chain disruptions and forecasts of global economic activity, especially in the light of China’s coronavirus pandemic lockdown policy as well as recent developments in the financial sector in advanced economies.
In addition, these developments have been reflected in major fluctuations in the financial conditions of the U.S. and EU economies, confirming rising levels of uncertainty related to the global economy. Locally, real economic activity growth slowed slightly to register 3.9% in the fourth quarter of 2022 compared to 4.4% in the third quarter of 2022.
Thus, the first half of the financial year 2022/2023 recorded a growth rate of 4.2%. Growth in real GDP was driven by improved economic activity for the private sector, especially in tourism, agriculture, wholesale and retail sectors, says the data for the real GDP, growth and retail sectors.
Moreover, most of the initial indicators continued to register positive growth rates in the first quarter of 2023. GDP growth is expected to follow a moderate pace during the 2022/2023 financial year compared to the previous financial year and will rise again. Regarding the job market, the unemployment rate was recorded at 7.2% in the fourth quarter of 2022, compared to 7.4% in the third quarter of 2022.
The annual rate of overall inflation in the city continued to rise to a record 25.8% and 31.9% in January and February 2023, respectively. The yearly rate of core inflation was also recorded at 31.2% in January 2023 and reached the highest rate historically recorded in February 2023 to record 40.3%.
These increases reflect many factors, including local supply chain disruptions, fluctuations in the Egyptian pound exchange price, as well as demand pressures, which are evident in the developments of real economic activity compared to its peak productivity and the rise in the rate of local liquid growth. In addition, the seasonal impact of Ramadan has been reflected in Umrah prices and food prices.
The Committee continues to assess the impact of basic return price restrictions taken proactively based on data availability. Recent developments in inflation have shown a widespread rise in record consumer price items, which requires more monetary restraint, not only to contain the previously mentioned inflationary pressures but also to avoid the secondary effects that might result from supply shocks in order to control price inflation expectations.
In light of the earlier, the Monetary Policy Committee decided to raise basic yield rates by 200 basis points, reaffirming that the base yield rate path is based on expected inflation rates and not on prevailing inflation rates.
The Committee also stresses the necessity of restraint of monetary policy as a prerequisite to achieving the inflation rates targeted by the Central Bank of Egypt, which is 7% ( و 2 per cent) on average during the fourth quarter of 2024 and 5% (two percentage points) on average in the fourth quarter of 2026. The Monetary Policy Committee will closely monitor all economic developments and will not hesitate to modify its policy in order to achieve the goal of price stability.