CBE holds rates steady: The Central Bank of Egypt (CBE) left interest rates unchanged on Thursday, it said in a statement (pdf), citing cooling domestic and global inflation, an uncertain local trajectory for commodity prices, and slow economic growth. “Current policy rates remain appropriate to maintain the prevailing tight monetary stance until a significant and sustained decline in inflation is realized,” the bank said.

Where rates stand: The Monetary Policy Committee (MPC) has kept the overnight deposit rate at 27.25%, the overnight lending rate at 28.25%, and the main operation and discount rates at 27.75%.

ICYMI- Rates have been stable since March: The central bank held rates steady in its past two meetings in July and May after delivering a jumbo 600 bps rate hike in March.

This was expected: All eight analysts and economists we surveyed last week forecasted that the bank would hold rates steady as persisting inflationary pressures keep potential rate cuts at bay. Despite inflation being on a downward trend, “prematurely cutting rates could exacerbate the problem of core inflation,” banking expert Hany Abou El Fotouh told us.

What they said: The committee noted a “contained inflationary impact” as annual headline and core inflation eased for the fifth consecutive month in July. Real economic activity “remains below potential,” with real GDP growth softening to 2.2% in 1Q 2024 from 2.3% in 4Q 2023.

Remember: Annual urban inflation cooled to its lowest level since December 2022 in the last monthly data set, which showed annual inflation coming in at 25.7% in July, down 1.8 percentage points from 27.5% in June. Annual core inflation — which excludes volatile items such as food and fuel — slowed to 24.4%, down from 26.6%.

But a recent round of subsidy cuts may throw off disinflation: Some analysts see inflation picking up again in the coming months on the back of fuel and electricity price hikes introduced over the summer. IBIS Consultancy economist Ali Metwally sees inflation rising to somewhere in the range of 30-31% between August and September.

The bank’s long-term outlook: The MPC sees inflation hovering around current levels until 4Q 2024, before it declines significantly in 1Q 2025 “due to the cumulative impact of monetary policy tightening and favorable base effects.” However, the committee noted upside risks including tighter global oil supplies, escalating regional geopolitical tensions, and a greater-than-expected impact of fiscal measures. On the growth front, economic indicators for 2Q 2024 suggest that real GDP growth has started to pick up and is expected to gradually recover during fiscal year 2024-2025.

Some parts of the int’l press also picked up the bank’s decision: Bloomberg | Reuters.

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