The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to maintain interest rates for the sixth time in a row since December 2020. It decided to keep the overnight deposit rate, overnight lending rate and the rate of the main operation unchanged at 8.25 percent, 9.25 percent and 8.75 percent, respectively. The discount rate was also kept unchanged at 8.75 percent. The MPC based its decision on the readings of June's inflation, as annual headline urban inflation marginally increased to 4.9 percent in June 2021 from 4.8 percent in May 2021, reflecting an unfavorable base effect for the second consecutive month. The MPC expected annual inflation to continue to be affected by unfavorable base effects in the near term, adding that the slight uptick in June 2021 was driven by the higher annual inflation of food items, which accelerated to 3.4 percent in June 2021 from 1.7 percent in May 2021, reflecting higher annual contribution of subsidised and core food items. Meanwhile, annual nonfood inflation declined to 5.6 percent in June 2021 from 6.3 percent in May 2021, which is its lowest recorded level since June 2014. On the other hand, annual core inflation increased to 3.8 percent in June 2021 from 3.4 percent in May 2021, according to the MPC. On the real GDP, the MPC estimated its growth to have recorded a preliminary figure of 2.8 percent in FY 2020/21, compared to 3.6 percent in the previous fiscal year, reflecting the full year's impact of the pandemic's outbreak and its related containment measures on economic activity. Additionally, sectoral growth continued to pick up, as detailed data up to Q1 of 2021 showed that it remains supported by the positive contributions of trade, construction, communications and natural gas extractions. Meanwhile, the unemployment rate rose slightly to 7.4 percent in Q1 of 2021, up from 7.2 percent in Q4 of 2020. On the global level, the MPC said economic activity continues to recover from the COVID-19 pandemic, although growth remains uneven across regions, as the pace of vaccinations varies across countries. Moreover, prospects of global economic recovery remain contingent on the efficacy of vaccines and the ability of countries to contain the spread of the virus, especially in light of the emergence of newer variants, according to the MPC. It added that the financial conditions are expected to remain supportive of economic activity over the medium term. International prices for oil have continued to increase, driven by both supply and demand factors. In the meantime, international prices for food and some other commodities remain at multi-year highs despite their drop recently, said the MPC. It noted that its decision to maintain the current interest rates are consistent with achieving the inflation target of 7 percent (±2 percentage points) on average through Q4 of 2022. The MPC offered assurances that it closely monitors all economic developments and will not hesitate to utilise all available tools to support the recovery of economic activity, within its price stability mandate. The committee's next meeting is scheduled on 16 September.
