Why did the central bank decide to fix interest rates in its first meeting


6:32 PM

Thursday 04 February 2021

Books – Mustafa Eid:

The Monetary Policy Committee of the Central Bank of Egypt decided in its meeting today, Thursday, to keep the overnight interest rates unchanged at 8.25% for deposits and 9.25% for lending.

The committee said, in a statement today, that it decided that the basic interest rates of 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 on Medium term.

She added that the annual rate of general urban inflation decreased to 5.4% in December 2020 from 5.7% in November 2020, mainly driven by the decline in fresh vegetable prices, which is due to both the seasonal pattern of fresh vegetables prices, in addition to the partial disappearance of the supply shock that it witnessed. Tomato prices in November 2020.

The annual rate of core inflation also decreased to 3.8% in December 2020 from 4% in November 2020, according to the committee.

Accordingly, the committee indicated that the annual general inflation rate in urban areas recorded an average rate of 5.2% during the fourth quarter of 2020, which is less than the minimum target range of 6% announced in 2018.

The committee attributed this deviation from the target range for inflation to both the impact of the spread of the Corona pandemic and the accompanying precautionary measures on economic activity, and in addition, the Egyptian government has taken several measures to avoid any shortage resulting from the supply of goods in the market, which also contributed to reducing inflation rates. .

The committee stated that despite the above, and in view of the risk balances, the Central Bank has taken several measures proactively in order to support economic activity in line with achieving the objective of price stability in the medium term.

Preliminary data indicate that the real growth rate of the gross domestic product recorded 0.7% during the third quarter of 2020 compared to negative 1.7% during the second quarter of the same year, according to the committee.

The committee explained that some initial indicators in terms of demand continued to recover during the fourth quarter of 2020, and the unemployment rate decreased to 7.3% during the third quarter of 2020, compared to 9.6% during the second quarter of the same year.

The committee said that at the global level, economic activity remains weak despite the easing of global financial conditions, as a result of the negative impact of both the second wave of the spread of the Corona pandemic and the accompanying precautionary measures on the global economic prospects in the near term.

On the other hand, the path of global economic recovery depends greatly on the effectiveness, availability and speed of distribution of vaccines for the Corona pandemic, which in turn may reduce the uncertainty prevailing in the medium term, according to the committee.

The committee noted that at the same time, international oil prices continued to rise, driven by developments on the supply side.

Today, at the committee’s first meeting in 2021, the central bank’s decision came in line with most of the expectations of bankers, analysts and investment banks to fix interest in light of the uncertainty of the Corona virus vaccine, and to preserve inflows from foreign investors in debt instruments.

The central bank had cut interest rates by a total of 4% during 2020, including 3% in one go last March, as a pre-emptive measure to confront the repercussions of the emerging Corona virus pandemic.

The Monetary Policy Committee affirmed that it 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.

Many analysts expect the Central Bank to cut interest rates by 1% during 2021, in continuation of the accommodative policy that it began in 2018, after raising the interest by a total of 7% during the period since the float of the pound on November 3, 2016, until July 2017.

The monetary policy committee is scheduled to hold 7 other meetings this year to discuss the fate of interest rates, the most recent of which is on March 18th.

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