Egypt's central bank has kept its key interest rates on hold on Thursday, ascribing its decision to August's inflation readings. The central bank's Monetary Policy Committee (MPC) maintained the overnight deposit rate, overnight lending rate, and the rate of the main operation with no change at 8.25 percent, 9.25 percent, and 8.75 percent, respectively. The discount rate was also kept on hold at 8.75 percent. Annual headline urban inflation rose to 5.7 percent in August 2021 from 5.4 percent in July 2021, after having accelerated from 4.9 percent in June 2021. Annual core inflation slightly fell to 4.5 percent in August 2021 from 4.6 percent in July 2021, after having grown from 3.8 percent in June 2021. "Annual headline inflation rates were affected by unfavourable base effects during July 2021 and August 2021 as August 2020 and July 2020 reflected the impact of the COVID-19 outbreak and its resulting containment measures on inventory levels and consumption patterns. Accordingly, the acceleration in August 2021 and July 2021 was mainly driven by higher annual contribution of food items." MPC said in a statement. "Annual food inflation increased for the fourth consecutive month to 6.6 percent in August 2021 from 4.8 percent in July 2021. Meanwhile, slightly offsetting this acceleration, is the decline in annual non-food inflation to 5.3 percent in August 2021 from 5.7 percent in July 2021, which is the lowest recorded level since April 2014." On the macroeconomic level, MPC said: "Real GDP growth recorded a preliminary figure of 7.7 percent in 2021 Q2, reflecting the sustained recovery of economic activity; as it continues to gather pace and rebound from last year's trough at negative 1.7 percent. "The aforementioned development reflects a strong favourable base effect compared to the corresponding quarter's shrunken base during the peak of the pandemic last year. In addition, this implies that growth in fiscal year 2020/21 registered 3.3 percent, an upward revision from the 2.8 percent that was estimated previously and compared to 3.6 percent in the previous fiscal year. "Moreover, leading indicators point towards a sustained strong pick-up across most sectors. Meanwhile, the unemployment rate stabilized at 7.3 percent in 2021 Q2 compared to 7.4 percent in 2021 Q1." On the global level, MPC said global economic activity continues to recover from the pandemic, however, growth remains uneven across regions as the pas of vaccinations varies across countries. "Additionally, prospects of global economic recovery remain contingent on the efficacy of vaccines and the ability of countries to contain the spread of the virus, in light of the emergence of newer variants. Global financial conditions continue to be accommodative." Compared to the last MPC, median projections for Brent oil prices are broadly stable, while international prices for food and some other commodities remain at multi-year highs. "Against this background, the MPC decided that keeping policy rates unchanged remains consistent with achieving the inflation target of percent (±2 percentage points) on average in 2022 Q4 and price stability over the medium term."
