MPC decides to keep key policy rates unchanged

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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

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

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