The Central Bank of Egypt (CBE) expects inflation rates to reach their peak in the second half (2H) of 2023, provided that they decline again to the previously announced target, supported by the restrictive monetary policies.
Last Thursday, the Monetary Policy Committee (MPC) of CBE decided to increase the basic return rates by 1% to 19.25% for deposits, 20.25% for lending, and 19.75% for the credit and discount rate and the price of the main operation at the Central Bank.
In a statement, the committee said that global commodity price expectations continue to decline compared to the expectations presented to MPC during its meeting in June 2023. Additionally, actual oil prices increased over last month.
MPC added that while the expectations of inflation rates declined in some major economies, they generally continued to go beyond the target rates.
The committee predicts for the main rates of return to remain at their high levels, as a result of the persistence of global rates of inflation at levels higher than targeted. This is in line with the restriction of global financial conditions in general.
On the local level, MPC stated that the growth rate of real economic activity remained unchanged, recording 3.9% during the first quarter of 2023 compared to the fourth quarter of 2022.
The preliminary data for the first quarter of 2023 shows that economic activity was driven by the positive contribution of the sectors of tourism, agriculture, construction and building.
The committee also expects the GDP growth rate to slow down during fiscal year 2022/2023 compared to the previous fiscal year, in line with the preliminary indicators for the second quarter of 2023, with a gradual increase after that in the medium term.
With regard to the labour market, the committee pointed out that the unemployment rate decreased to 7.1% during the first quarter of 2023, compared to a rate of 7.2% during the previous quarter, explaining that this is mainly due to the increase in the number of workers.
The committee indicated that the annual rate of general urban inflation increased to 35.7% in June 2023 from 32.7% in May 2023. The annual rate of core inflation increased to 41.0% in June 2023 from a rate of 40.3% in May 2023. This was driven by a widespread rise in prices of most consumer price index items as a result of persistent supply shocks.
The committee stressed that the course of basic interest rates depends on expected inflation rates not prevailing inflation rates. MPC pointed out that it will continue to keep an eye on economic developments and expectations during the coming stage, and will not hesitate to use all available monetary policy tools to maintain restrictive monetary conditions to achieve targeted inflation rates. These target rates are 7% (±2%) on average during the fourth quarter of 2024 and 5% (±2%) on average during the fourth quarter of 2026.
© 2022 Daily News Egypt. Provided by SyndiGate Media Inc. (Syndigate.info).