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MPC decides to cut key policy rates by 225 basis points

Posted on أبريل 18, 2025 by aberabozaher

MPC decides to cut key policy rates by 225 basis points

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided today to cut the CBE’s overnight deposit rate, overnight lending rate, and the rate of the main operation by 225 basis points to 25.00 percent, 26.00 percent, and 25.50 percent, respectively. The Committee also decided to cut the discount rate by 225 basis points to 25.50 percent.

MPC

Globally, the prevailing uncertainty surrounding the outlook for economic growth and inflation has led central banks in select advanced and emerging market economies to opt for a cautious approach towards the future path of monetary policy. While economic growth remains broadly stable, recent developments in global trade are expected to dampen the outlook due to concerns regarding supply chain disruptions and weakening global demand. In particular, oil prices declined significantly due to supply-side factors and expected softening in global demand amidst ongoing trade uncertainties. Meanwhile, prices of key agricultural commodities, particularly grains, have exhibited volatility, driven by climate-related disruptions. Nevertheless, inflation remains vulnerable to upside risks, including heightened geopolitical tensions and continued disruptions in global trade due to rising protectionism.

Domestically, preliminary indicators for Q1 2025 suggest a sustained recovery in economic activity for the fourth consecutive quarter, with growth exceeding the 4.3 percent registered in Q4 2024. Real GDP growth in Q4 2024 was primarily driven by the positive contributions of non-petroleum manufacturing, trade, and tourism. Nonetheless, estimates for the output gap indicate that actual economic activity remains below its full potential, despite continued growth throughout 2024, but is projected to reach full potential by end of FY 2025/26. Accordingly, the current output gap estimates support the forecasted disinflation path over the short term, as demand-side inflationary pressures are expected to remain subdued given the prevailing tight monetary stance.

Q1 2025 witnessed a significant decline in annual inflation due to a sizable favorable base effect, cumulative monetary tightening, and the fading impact of previous shocks. In particular, annual headline and core inflation decelerated to 13.6 percent and 9.4 percent in March 2025, respectively, with the latter recording its lowest rate in almost three years.

The slowdown in annual headline inflation is the result of a sharp decline in annual food inflation from 45.0 percent in March 2024 to 6.6 percent in March 2025. However, annual non-food inflation exhibited relative downward stickiness, dropping from 25.7 percent in March 2024 to 18.9 percent in March 2025, due to its slower response to previous shocks and the impact of fiscal consolidation. Additionally, monthly inflation dynamics have moderated since the beginning of the year and are approaching their historical levels, suggesting an improvement in inflation expectations.

The sharp decline in annual headline inflation by approximately 9.0 p.p. in Q1 2025, as largely anticipated, significantly tightened the monetary stance, availing ample room for commencing the easing cycle. Furthermore, inflation is expected to continue declining throughout 2025 and 2026, albeit at a slower pace compared to the decline in Q1 2025. The slower disinflation path is attributed to the impact of recently implemented and planned fiscal consolidation measures in 2025, in addition to the downward stickiness of non-food inflation. However, upside risks surrounding the inflation outlook persist, emanating from possibly higher than expected passthrough of fiscal measures, as well as uncertainty regarding the impact of the current China-US trade war, and an escalation of regional geopolitical conflicts.

In view of the above and considering the prevailing monetary stance, the MPC judges that cutting policy rates by 225 basis points aligns with upholding the appropriate monetary stance, with the aim of anchoring inflation expectations and safeguarding the projected disinflation path. The Committee will continue to assess its decisions regarding the magnitude and pace of monetary policy easing on a meeting-by-meeting basis. These decisions will continue to be a function of the forecast trajectory, and will remain sensitive to the prevailing balance of risks. The MPC will keep monitoring economic and financial developments, and will not hesitate to utilize all tools at its disposal to achieve its price stability mandate, steering inflation towards its 7 percent ± 2 p.p. target, on average, in Q4 2026.

Monetary Policy Sector

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MPC decides to keep key policy rates unchanged

Posted on فبراير 20, 2025 by aberabozaher

MPC decides to keep key policy rates unchanged

In today’s meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to maintain the CBE’s overnight deposit rate, overnight lending rate, and the rate of the main operation at 27.25 percent, 28.25 percent, and 27.75 percent, respectively. The Committee also decided to maintain the discount rate at 27.75 percent.

While the outlook for global economic growth and inflation remains uncertain, some central banks in both advanced and emerging market economies have continued to gradually cut their policy rates. Others have opted to remain cautious in light of unfolding global economic developments.

Economic growth remains broadly stable and is expected to continue at the current pace well into the medium term, though it has not yet returned to pre-pandemic levels. This outlook is still subject to risks, particularly from the currently restrictive monetary stance that could dampen demand, as well as the resurgence of protectionist policies and their impact on global trade.

With respect to inflation, global commodity prices have shown volatility recently, with forecasts suggesting an increase in their prices over the medium term, especially grain prices. This is still subject to risks, including heightened geopolitical tensions and policy disruptions to global trade.

MPC

Domestically, preliminary indicators for Q4 2024 suggest that economic activity grew at a faster pace compared to the 3.5 percent registered in Q3 2024, indicating sustained recovery in economic activity. Real GDP growth in Q3 2024 was primarily driven by the increasing contributions of manufacturing and transportation.

While estimates for the output gap indicate that real GDP remains below potential, supporting the disinflation path over the short term, it is expected that the economy will gradually move closer to its full potential by end of FY 2025/26. Regarding the labor market, the unemployment rate declined to 6.4 percent in Q4 2024 from 6.7 percent in Q3 2024.

Annual inflation experienced a slower pace of deceleration throughout the second half of 2024 compared to the first half, stabilizing at 24.0 percent in January 2025. Similarly, annual core inflation remained broadly stable in Q4 2024, recording 22.6 percent in January 2025.

While annual food inflation continues to decelerate, recording 20.8 percent in January 2025, annual non-food inflation remains sticky around 25.5 percent on average throughout 2024, reflecting the gradual dissipation of previous shocks.

Upside risks surrounding the inflation outlook have increased compared to the previous MPC meeting. This is due to the increasingly uncertain global and regional outlook regarding the impact of U.S. protectionist trade policies and geopolitical tensions.

Nevertheless, headline inflation is expected to decline substantially in Q1 2025, driven by the cumulative impact of monetary policy tightening and the favorable base effect.

This downward trajectory will continue during 2025, albeit at a slower pace given the expected drag effect from the fiscal measures aimed at tightening the fiscal stance. As such, underlying inflation is expected to converge to its historical average over the medium term, suggesting an improvement in inflation expectations.

Given the prevailing uncertainty and recent developments, the MPC judges that the current policy rates are appropriate to maintain a sufficiently tight monetary stance.

This will ensure the realization of the projected disinflation path, and firmly anchor inflation expectations. Accordingly, the Committee’s decisions regarding the appropriate time for beginning the accommodative cycle will be assessed on a meeting-by-meeting basis.

Decisions will continue to be made in response to the forecast trajectory and will be sensitive to the prevailing balance of risks.

The MPC will continue to monitor economic and financial developments and will not hesitate to utilize all tools at its disposal to achieve its price stability mandate. This includes steering inflation towards the target by containing demand-side pressures and second-round effects arising from supply shocks.

Monetary Policy Sector

[email protected]

MPC decides to keep key policy rates unchanged; extends inflation target horizons

Posted on ديسمبر 27, 2024 by aberabozaher

MPC decides to keep key policy rates unchanged; extends inflation target horizons

Cairo, Egypt — In its meeting today, the Central Bank of Egypt’s Monetary Policy Committee (MPC) decided to keep the CBE’s overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 27.25 percent, 28.25 percent, and 27.75 percent, respectively. The Committee also kept the discount rate unchanged at 27.75 percent. The meeting also decided to extend the inflation target horizons to Q4 2026 and Q4 2028 at 7 percent (± 2 p.p.) and 5 percent (± 2 p.p.) on average, respectively, in line with CBE’s gradual advance towards implementing a fully-fledged inflation targeting regime.

MPC

Globally, central banks in advanced and emerging market economies continued to gradually cut their policy rates as inflation moderates, while maintaining a restrictive stance to ensure convergence to target levels. Economic growth is broadly stable, with the current pace expected to continue over the medium term, yet still below pre-pandemic levels. However, the outlook is subject to downside risks, including the dampening effect of monetary tightening on economic activity, heightened geopolitical tensions, and the resurgence of protectionism. Furthermore, global commodity prices have recently exhibited minimal volatility, with forecasts suggesting a potential decline, especially in energy prices. Nonetheless, upside risks to inflation remain, such as disruptions to global trade and the adverse effects of extreme weather events on agricultural production.

Domestically, leading indicators for Q3 and Q4 2024 signal continued recovery in economic activity, with estimates indicating that real GDP growth has accelerated compared to Q2 2024. Nonetheless, real GDP remains below its potential, supporting the forecasted decline in inflation throughout 2025, and is projected to realize its full potential by end of FY 2025/26. With regards to the wage channel, inflationary pressures continue to be subdued, as real wage growth remains contained.

Following three months of broad stability, annual headline inflation eased in November 2024 to 25.5 percent, mainly driven by a decline in food prices, with volatile and core food prices recording their lowest annual inflation in almost two years at 24.6 percent. Conversely, administered prices of non-food items, including fuel products, inland transportation, and tobacco products increased in line with the revenue mobilization strategy aimed at curbing the fiscal deficit. Accordingly, annual core inflation declined to 23.7 percent in November 2024 against 24.4 percent in October 2024. These outturns, along with the improvement in inflation expectations that reflected in the gradual normalization of monthly inflation dynamics, suggest that inflation will continue its downward course.

Following a surge in global inflation for more than two years, inflation in advanced and emerging economies started to moderate, yet remains above target levels. Egypt has not been an exception, with headline inflation declining recently, and is expected to average around 26 percent in Q4 2024, missing the CBE target range of 7 percent (± 2 p.p.). This can be attributed to a combination of domestic and global economic factors throughout 2022-2024, namely (1) the build-up of external imbalances, fueled by a surge in global food prices throughout 2021, imported inflation, and sizeable portfolio outflows following the outbreak of the Russo-Ukrainian conflict, (2) domestic supply shocks arising from market distortions and unanchored inflation expectations, and more recently (3) fiscal consolidation measures aimed at tightening the fiscal stance and placing debt on a downward trajectory. These developments, along with exchange rate depreciation, drove inflation above the target range, with annual headline inflation peaking at 38.0 percent in September 2023, before declining to 25.5 percent in November 2024.

MPC

Starting March 2024, the CBE implemented a number of corrective measures aimed at restoring macroeconomic stability, which succeeded in containing inflationary pressures and bringing down overall inflation. These measures include the CBE’s significant tightening of monetary policy as well as the unification of the foreign exchange market that helped anchor inflation expectations and attract sizable foreign exchange inflows. Nevertheless, risks to the outlook include possible escalation of geopolitical tensions, resurgence of protectionism, and higher-than-anticipated passthrough of fiscal measures. Looking ahead, inflation is projected to ease substantially in 2025, as the cumulative impact of monetary policy tightening and favorable base effect materializes, with a notable decline in Q1 2025 and convergence to single digits by H2 2026.

Considering inflation dynamics, the MPC deems the deferment of the previous targets as appropriate, extending the target horizons to Q4 2026 and Q4 2028 at 7 percent (± 2 p.p.) and 5 percent (± 2 p.p.) on average, respectively. The deferment will allow for more room to weather price shocks without requiring further stringent monetary tightening, thereby avoiding substantial slowdown in economic activity.

In view of the above, the Committee judges that the current policy rates remain appropriate to maintain a tight monetary stance until a significant and sustained decline in inflation is achieved, and expectations are firmly anchored. The Committee’s decisions regarding the duration and extent of policy restrictiveness will be made on a meeting-by-meeting basis. Such decisions will continue to be outlook dependent, responsive to data developments, and sensitive to the prevailing balance of risks. The MPC will continue to monitor economic and financial developments, and will not hesitate to utilize all tools at its disposal to steer inflation to target levels through containing demand-side pressures and second-round effects emanating from supply shocks.

Monetary Policy Sector
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