Egypt’s central bank is playing it safe again, keeping its overnight interest rates untouched on Thursday. The bank claims that inflation pressures have calmed, though the country’s economic growth is now dragging its feet.
For the third time since March 6, the lending rate remains locked at 28.25%, and the deposit rate stays put at 27.25%. This comes after a dramatic 600 basis point hike earlier this year, when Egypt secured an $8 billion lifeline from the International Monetary Fund (IMF).
The bank’s Monetary Policy Committee (MPC) issued a statement trying to justify their decision: “With previous shocks fading, inflationary pressures continued to ease.” They proudly noted that both headline and core inflation had dipped for five straight months.
Egypt’s economy has been tossed around by one crisis after another. The global pandemic, Russia’s invasion of Ukraine, and now the war in Gaza have all played a part in shaking things up. Inflation may have cooled to 25.7% in July, finally bringing the real interest rate into positive territory for the first time since January 2022. Sure, that’s a win compared to last September’s all-time inflation high of 38%, but the August inflation report, due on Tuesday, may reveal whether this “progress” is as solid as it looks.
And what about economic growth? Well, the picture isn’t so rosy. Egypt’s real GDP growth slumped to a meager 2.2% in Q1 2024, compared to 2.3% in the previous quarter. The bank blames this slowdown on a shrinking public sector and disruptions in Red Sea trade, which have battered the service industry. But don’t worry, according to the MPC, growth should pick up slowly in the fiscal year that started in July. If all goes well, they expect inflation to take a serious nosedive by early 2025.
They want us to believe the worst is over. The bank insists that food prices are stabilizing and that inflation expectations are “improving.” If that’s true, then inflation should be on a downward spiral, so they say.
But as we’ve learned, nothing in Egypt’s economy is that simple.
