The Monetary Policy Committee decides to keep key interest rates unchanged and extend the time horizon for target inflation rates
Cairo, Egypt — The Monetary Policy Committee of the Central Bank of Egypt decided at its meeting on Thursday, December 26, 2024, to maintain the overnight deposit and lending rates and the Central Bank’s main operation rate at 27.25%, 28.25%, and 27.75%, respectively. It also decided to keep the credit and discount rates at 27.75%. It was also decided during the meeting to extend the time horizon for the targeted inflation rates to the fourth quarter of 2026 and the fourth quarter of 2028 at 7% (± 2 percentage points) and 5% (± 2 percentage points) on average, respectively, in line with the gradual progress of the Central Bank. Towards adopting an integrated framework for inflation targeting.
At the global level, central banks in advanced and emerging economies continued to gradually reduce interest rates in light of the continuing decline in inflation rates, while maintaining monetary tightening policies, as achieved inflation rates still exceed target levels. The economic growth rate is largely stable, and expectations indicate that it will continue at its current levels, although it is still lower than the levels before the Corona pandemic. However, the growth outlook remains vulnerable to some risks, including the negative impact of monetary tightening on economic activity, geopolitical tensions, and the possibility of a return to protectionist trade policies. As for global prices of basic commodities, they have witnessed slight fluctuations recently, and expectations indicate a possible decline in their prices, especially energy products. However, upside risks remain surrounding the inflation path, including global trade disruptions and the negative impact of weather conditions on agricultural production.
On the local side, preliminary indicators for the third and fourth quarters of 2024 indicate a continued recovery in economic activity, with an acceleration in the pace of real GDP growth compared to the second quarter of 2024. However, real GDP remains below its maximum capacity, which supports the expected decline. In inflation during the year 2025, it is expected to achieve its maximum capacity by the end of the fiscal year 2025/2026. With regard to wages, the resulting inflationary pressures are still limited in light of the weak real growth rate of wages.
Although the annual rate of general inflation witnessed stability during the past three months, it declined in November 2024 to 25.5% as a result of the decline in food prices, as the prices of basic foodstuffs and fresh vegetables recorded their lowest annual inflation rate in nearly two years at 24.6% during November 2024. Administratively determined prices for non-food goods, including fuel products, road transport and tobacco products, increased, consistent with the revenue-raising strategy aimed at reducing the fiscal deficit. Accordingly, the annual rate of core inflation fell to 23.7% in November 2024 compared to 24.4% in October 2024. These results, together with improving inflation expectations and the return of monthly inflation rates to their usual pattern, indicate that inflation will continue its downward path.
After two years of a sharp rise in global inflation rates, inflation in advanced and emerging economies has begun to decline, although it is still higher than their target rates. Likewise, the general inflation rate in Egypt has begun to decline recently, and is expected to record around 26% in the fourth quarter of 2024 on average, exceeding the Central Bank’s target rate of 7% (± 2 percentage points). This is due to a group of local and global economic factors during the period 2022-2024, the most important of which are: (1) the accumulation of external imbalances as a result of the rise in global food prices during 2021, imported inflation, and the exit of securities portfolio investments following the outbreak of the Russian-Ukrainian conflict, (2) ) and local supply shocks and the failure to consolidate inflation expectations, and finally (3) measures to adjust public financial conditions with the aim of fiscal tightening and putting debt on a downward path. These developments, along with exchange rate movements, led to inflation exceeding its target rate, as the annual rate of general inflation peaked at 38.0% in September 2023 before falling to 25.5% in November 2024.
Starting in March 2024, the Central Bank of Egypt took a number of corrective measures aimed at restoring macroeconomic stability, which led to containing inflationary pressures and reducing general inflation. The most prominent of these measures are the restrictive monetary policy followed by the Central Bank, and the unification of the foreign exchange market, which helped consolidate inflation expectations and attract more foreign exchange flows. However, risks surrounding inflation include the possibility of worsening geopolitical tensions, the return of protectionist policies, and the increased impact of fiscal consolidation measures. Expectations indicate that inflation will decline significantly starting from the first quarter of 2025 as the cumulative impact of monetary tightening decisions and the positive impact of the base period are achieved, and it will approach recording single digits by the second half of 2026.
In view of inflation expectations and its monthly developments, the Monetary Policy Committee deemed it appropriate to extend the time horizon for inflation targets to the fourth quarter of 2026 and the fourth quarter of 2028 at 7% (± 2 percentage points) and 5% (± 2 percentage points) on average, respectively, thus allowing room to absorb price shocks without the need for further monetary tightening, thus avoiding a sharp slowdown in economic activity.
In light of the above, the Committee believes that keeping the central bank’s basic interest rates unchanged is appropriate until a noticeable and sustainable decline in the inflation rate is achieved, leading to consolidating expectations and achieving targeted inflation rates. The committee will take its decisions regarding the duration and severity of monetary tightening on a meeting-by-meeting basis, emphasizing that these decisions depend on expectations, the risks surrounding them, and new data. The Committee will continue to closely monitor economic and financial developments and evaluate their potential effects on economic indicators, and will not hesitate to use all available tools to bring inflation to its target rates by reducing inflationary pressures from the demand side and containing the secondary effects of supply shocks.
Monetary policy sector
monetary.policy@cbe.org.eg
To download the press release, Click here