Egypt's central bank leaves key interest rates unchanged

Egypt's central bank kept its overnight interest rates unchanged on Thursday, saying in a statement that steep rate increases put in place over the last year should help to tame inflation, now running at 21.3%.

The hold had been unexpected by many analysts. A poll of 13 analysts forecast the bank would raise rates by a median 150 basis points.

The bank's Monetary Policy Committee (MPC) kept the lending rate at 17.25% and the deposit rate at 16.25%.

The MPC said in its statement that it had front-loaded rate hikes by 800 basis points (bps) over the last year, 500 bps of which were in the fourth quarter, and believed these should counter inflationary pressures.

In September, it increased the reserve ratio at banks by four percentage points, a move also designed to dampen inflation.

The MPC expected demand-side pressure on prices to continue after a December headline inflation figure of 21.3%, "as evidenced by developments in real economic activity relative to potential capacity and the impact of recent exchange rate fluctuations, both of which are consistent with higher broad money growth outturns."

Since March, the central bank has allowed the currency to fall by nearly 50% against the dollar.

The MPC said it left rates unchanged to "assess the impact of the implemented front-loaded tightening policies in a data-driven manner," adding that future policy rates would remain a function of forecast rather than prevailing inflation.

Economic activity improved to 4.4% in the third quarter from 3.3% the previous quarter, driven primarily by tourism, agriculture and trade, the MPC said.

"Additionally, most leading indicators continued to register positive growth rates in 2022 Q4, albeit at a slower pace," it said.

"Going forward, real GDP growth is expected to moderate in the fiscal year 2022/23 compared to the previous fiscal year, before picking up thereafter," the statement said. The fiscal year runs to end-June.