The Monetary Policy Committee of the Central Bank of Egypt (CBE) 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 in its latest meeting during 2020. The discount rate was also kept unchanged at 8.75 percent. MPC referred to the rise of the annual headline urban inflation which recorded 5.7 percent in November 2020, up from 4.5 percent in October 2020. It noted that the increase in annual headline inflation continued to be mainly driven by higher annual contribution of selected food items since September 2020. In November 2020, it reflected a transitory supply shock in tomatoes. "In the meantime, annual core inflation increased only slightly to 4.0 percent in November 2020 from 3.9 percent in October 2020," it added. Moreover, MPC expected average annual headline inflation to be in the low single digits range in the fourth quarter of 2020, with increasing likelihood of coming under the inflation target floor of 6 percent. "The magnitude of a possible deviation from the target would mainly depend on the degree of the reversal of the supply shock of tomatoes, among other factors," it clarified. The MPC attributed its decision of keeping key policy rates unchanged to the inflation rate which isconsistent with achieving the inflation target of 7 percent (±2 percentage points) in 2022 Q4 and price stability over the medium term. "The MPC reiterates that the path of current policy rates remains a function of medium-term inflation expectations rather than current inflation outturns," it noted. MPC also referred to the real GDP growth which recorded a preliminary figure of 0.7 percent during 2020 Q3, up from -1.7 percent during the second quarter of 2020. It added that growth registered a preliminary figure of 3.6 percent in FY 2019/20 compared to 5.6 percent a year earlier. "Economic activity was affected by the impact of COVID-19 and its resulting containment measures. Meanwhile, most demand side leading indicators for October and November 2020 show continued signs of recovery after displaying weakness during 2020 Q2. Furthermore, the unemployment rate recorded 7.3 percent in 2020 Q3, the lowest rate on record, and down from 9.6 percent in 2020 Q2," it noted. On a global manner, the statement pointed out that economic activity remains subdued despite the accommodative financial conditions, as the outbreak of the second wave of COVID-19 pandemic and its related lockdown measures weigh on the near-term outlook. On the other hand, the continued development and roll-out of vaccines could ease the level of uncertainty regarding economic activity over the medium term. Meanwhile, international oil prices started to slightly pick up recently, according to the statement. Egypt's GDP growth is expected to recover albeit gradually, with structural measures expected to support economic activity. On the other hand, annual headline inflation rates are expected to be affected by unfavorable base effects related to the normalization of monthly inflation rates in 2021, but will continue hovering around the inflation target's mid-point of 7 percent in 2022, according to MPC.
