Egypt’s central bank leaves overnight interest rates steady

Egypt’s central bank as expected left its overnight interest rates on hold on Thursday, saying inflation pressures had subsided but that economic growth had softened.

The bank said in a statement that the lending rate remained at 28.25 per cent, while the deposit rate stood at 27.25 per cent.

It was the third time that it left rates unchanged since a 600 basis point (bps) hike on March 6, when it signed a $8bn financial support agreement with the International Monetary Fund.

All but one of 15 analysts polled by Reuters this week had expected rates to remain on hold, with a sole analyst predicting a 100 bps cut.

“With the gradual easing of previous shocks, inflationary pressures continued to subside, as annual headline and core inflation edged downward for the fifth consecutive month,” the central bank’s monetary policy committee (MPC) wrote in a statement accompanying the decision.

Egypt’s economy, already shaky, has been buffeted successively by the Covid-19 pandemic, Russia’s war in Ukraine and the war in Gaza.

Inflation dropped to 25.7 per cent in July, the first time the real interest rate has been positive since January 2022. Inflation fell gradually from an all-time peak of 38 per cent in September. August inflation figures are due on Tuesday.

“Domestically, real GDP growth softened to 2.2 per cent in Q1 2024 compared to 2.3 per cent in Q4 2023,” the MPC said.

“The softening is driven by declining public contribution to economic activity due to the impact of Red Sea maritime trade disruption on the service sector.”

The MPC said it expected economic growth to recover gradually in the fiscal year that began on July 1 and that inflation would decline significantly in the first quarter of 2025.

“The gradual unwinding of food inflation along with the improvement of inflation expectations suggest that inflation is currently on a downward trajectory,” it said.

Read: Egypt’s net foreign assets positive for third straight month in July