Why did the Central Bank set interest rates on deposit and...

Why did the Central Bank set interest rates on deposit and...
Why did the Central Bank set interest rates on deposit and...

The Monetary Policy Committee of the Central Bank of Egypt decided in its meeting on Thursday, 5 August 2021, to maintain the overnight deposit and lending rates and the central bank’s main operation rate at the level of 8.25%, 9.25% and 8.75%, respectively. As well as maintaining the credit and discount rate at the level of 8.75%.

The annual general urban inflation rate rose slightly to 4.9% in June 2021 from 4.8% in May 2021, as a result of the negative impact of the base period for the second consecutive month. The negative impact of the base period on annual rates of inflation is expected to continue in the near term. The slight rise in the annual general inflation rate in June 2021 is due to the increase in the annual rate of food commodity inflation to 3.4% from 1.7% in May 2021, to reflect the increase in the annual contribution of the prices of subsidized food commodities and basic food commodities. This has limited the annual decline in non-food inflation to 5.6% in June 2021 from 6.3% in May 2021, the lowest recorded rate since June 2014. At the same time, the annual core inflation rate rose to 3.8% in June 2021 compared to 3.4% In May 2021.

Preliminary data indicate that the real GDP recorded a growth rate of 2.8% during the fiscal year 2020/2021, compared to 3.6% during the previous fiscal year, to reflect the impact of the spread of the Corona virus pandemic and the precautionary measures related to it on economic activity for a full year. Output growth at the cost of production factors continued to rise, according to detailed data, during the first quarter of 2021, supported by the positive contributions of the sectors of trade, construction, building and communications, in addition to the natural gas extraction sector. In addition, preliminary indicators point to continued improvement in most economic sectors. On the other hand, the unemployment rate stabilized at 7.4% during the first quarter of 2021, compared to 7.2% during the fourth quarter of 2020.

At the global level, economic activity continued to recover, albeit to varying degrees at the level of different sectors and countries, as a result of the disparity in vaccination rates against the Corona virus between countries. In addition, the recovery of global economic activity depends on the developments in the spread of the Corona virus pandemic and the ability of some countries to contain the spread of the pandemic, especially in light of the emergence of new strains of the Corona virus. It is expected that the appropriate financial conditions that support global economic activity will continue in the medium term. At the same time, world oil prices rose, driven by developments from both the supply and demand sides. While international prices of foodstuffs and some other primary commodities continued to record high levels compared to previous years, despite their recent decline.

In light of the foregoing, the Monetary Policy Committee decided that the basic interest rates at the Central Bank are appropriate at the present time, and are consistent with achieving the target inflation rate of 7% ( ± 2 percentage points) on average during the fourth quarter of 2022 and price stability in the medium term.

The Monetary Policy Committee will closely follow all economic developments and risk balances and will not hesitate to use all its tools to support the recovery of economic activity, provided that inflationary pressures are contained.

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