a u a
Posted on: Thursday, September 22, 2022 – 7:32 PM | Last update: Thursday, September 22, 2022 – 7:33 PM
The Central Bank ascribed the decision of the Monetary Policy Committee at its meeting, this evening, to maintain the overnight deposit and lending rates and the central bank’s main operation rate at the level of 11.25%, 12.25% and 11.75%, respectively, and to maintain the credit and discount rate at the level of 11.75%. And increasing the percentage of cash reserves that banks are obligated to keep with the Central Bank of Egypt to 18% instead of 14%, indicating that on the global level, expectations of economic activity have declined as a result of the effects of the Russian-Ukrainian crisis.
At the same time, he added, the central banks abroad continued to restrict monetary policies by raising interest rates and reducing asset purchase programs to contain high inflation rates in their countries.
International prices of some basic commodities have fallen relatively, such as oil, as a result of the decline in demand due to expectations of a global recession.
The Central indicated that at the local level, preliminary data indicate that the real GDP recorded a growth rate of 3.2% during the second quarter of 2022, recording a growth rate of 6.6% during the fiscal year 2021/2022, compared to 3.3% during the year his previous finances.
He added, the growth in real GDP, according to the detailed data for the first nine months of the fiscal year 2021/2022, was mainly driven by the contribution of the private sector, in particular the contribution of the non-oil manufacturing industries, tourism and trade.
At the same time, the growth in the public sector was driven by the contribution of the natural gas extraction sector, the Suez Canal and the general government. Moreover, some preliminary indicators are still recording positive growth rates during the third quarter of 2022. Economic activity is expected to grow at a slower pace than was previously expected. This is partly due to the uncertainty and negative repercussions at the global level.
He pointed out that with regard to the labor market, the unemployment rate stabilized at 7.2% during the second quarter of 2022. This is due to the rise in the number of workers and the labor force to the same extent, limiting the contribution of each other.
The Central Bank stated that the annual general inflation rate in urban areas rose to 14.6% in August 2022 from a rate of 13.6% in July 2022. The annual rate of core inflation – which is calculated by excluding the group of fresh vegetables and fruits as well as goods and services whose prices are set administratively – was 16.7% in August 2022 from 15.6% in July 2022. The rise in the annual rate of inflation since the beginning of 2022 is mainly due to supply-side shocks, most notably the rise in global commodity prices. Despite the high annual rates of inflation, the monthly rates recorded lower rates compared to the highest levels recorded during the months of March and April 2022.
In light of the foregoing, he added, the Monetary Policy Committee considers that the current basic interest rates with an increase in the cash reserve ratio that banks are committed to maintain with the Central Bank of Egypt are consistent with achieving the goal of price stability in the medium term. The committee will continue to assess the impact of its decisions on inflation expectations and macroeconomic developments in the medium term, taking into account that the impact of its previous decisions to raise basic interest rates by 300 basis points during 2022 is still transmitted to the economy. As for the central bank’s target inflation rate of 7% (± 2 percentage points) on average during the fourth quarter of 2022, it is expected that inflation rates will temporarily rise above it.
The Central Bank affirms its commitment to achieving low and stable inflation rates in the medium term, which is a prerequisite for achieving sustainable growth rates.
The Central Bank affirmed that a committee will closely follow all global and local economic developments and will not hesitate to use all its monetary tools to achieve the goal of price stability in the medium term. The Committee also stresses that the current interest rates depend mainly on the expected inflation rates and not the prevailing rates.