Egypt holds interest rate hike despite slowdown

Reuters/Mohamed Abd El Ghany

The Central Bank of Egypt has kept its key interest rates unchanged despite a slowdown in economic growth.

The monetary policy committee (MPC) left the lending rate unchanged at 28.25 percent and the deposit rate at 27.25 percent.

Inflation has eased since the annual headline and core inflation peaked at 38 percent in September 2023 and 41 percent in June 2023, respectively.

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The deceleration was sustained despite an unexpected surge in February 2024, as annual headline and core inflation fell to 32.5 percent and 31.8 percent in April 2024, respectively.

Higher inflation has been driven by food items since December 2022, although the steady unwinding of annual food inflation has been offset by rising non-food inflation since November 2023. 

The meeting of the central bank’s MPC was its first since Egypt secured $8 billion in financial support from the International Monetary Fund (IMF) in March.

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A significant decline in inflation is anticipated in the first half of 2025 due to the combined impact of recent monetary policy tightening, unification of the foreign exchange market and favourable base effects, MPC said in a statement.

Economic growth slowed to 2.3 percent in the fourth quarter of 2023 from 4.2 percent a year earlier. Indicators for the first quarter of 2024 suggested that economic activity will remain subdued. Real economic activity is expected to pick up in fiscal year 2024/25. 

The central bank had called off the meeting of its MPC on March 28, citing the “sufficiency” of the special meeting held on March 6, during which it raised interest rates by 600 basis points. 

Egypt has signed an $8 billion expanded loan agreement with the International Monetary Fund, received an $8 billion funding package from the European Union, and a $6 billion loan from the World Bank Group.

In February, the country sealed a $35 billion deal with the UAE sovereign fund ADQ by selling development rights for Ras El-Hikma on the Mediterranean coast.