Why did the central bank decide to fix the deposit and lending interest rate?


The Monetary Policy Committee of the Central Bank of Egypt decided at its meeting on Thursday, January 16, 2020 to keep the rates of return on deposit and lending for one night and the price of the main process at the level of 12.25%, 13.25% and 12.75%, respectively, as well as to keep the credit and discount rate at 12.75 %.

The average annual rate of urban inflation was 7.1% in December 2019 compared to 3.6% in November 2019, where monthly inflation recorded a negative rate of 0.2% in December 2019, compared to a negative rate of 3.4% in December 2018. The annual rate of general inflation was consistent with The expectations of the Central Bank of Egypt, which is a natural reflection of the high negative impact resulting from the base period in the wake of the end of the impact of temporary shocks to the prices of fresh vegetables in the past year. Meanwhile, the annual core inflation rate was 2.4% in December 2019 compared to 2.1% in November 2019 mainly due to the high prices of poultry..

Initial data indicate that the real GDP growth rate stabilized to record 5.6% during the third quarter of 2019, after it recorded 5.6% during the fiscal year 2018/2019, the highest rate since the fiscal year 2007/2008. Available data up to the second quarter of 2019 also showed an increase in the contribution of private domestic demand to lead the growth of economic activity since the beginning of 2019, exceeding the contribution of net exports. The increase in the contribution of private domestic demand came as a result of the acceleration in the growth of private investments, which recorded the highest rate during the fiscal year 2018/2019 since the fiscal year 2005/06, as well as the gradual recovery in private consumption. Meanwhile, the unemployment rate recorded 7.8% during the third quarter of 2019, compared to a rate of 7.5% during the second quarter of 2019. Despite this, the numbers of workers continued to recover for the third quarter in a row.

At the global level, the growth rate of the global economy has stabilized, the global financial situation has been facilitated, and the risks associated with global trade policies have decreased. Meanwhile, global oil prices are still subject to fluctuations due to potential supply-side factors that include regional risks.

In light of the foregoing and after reducing the basic rate of return of the Central Bank by a cumulative amount of 350 basis points during the previous three meetings, the Monetary Policy Committee decided that the current rates of return are appropriate at the present time and are consistent with achieving the target inflation rate of 9% (± 3%) During the fourth quarter of 2020, price stability in the medium term. The committee will continue to follow all economic developments and will not hesitate to resume monetary easing, provided it continues to contain inflationary pressures.


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