The Central Bank of Egypt (CBE) left key interest rates unchanged on Thursday as inflation continue to decelerate for over four months. The CBE's Monetary Policy Committee (MPC) maintained all key rates, including the overnight deposit rate, lending rate, and main operation rate, at their current levels – 27.25 per cent, 28.25 per cent, and 27.75 per cent, respectively. The discount rate also remained at 27.75 per cent. Consumer prices continued their downward trend in June, reaching their slowest pace since the year's beginning. Annual inflation dropped to 27.5 per cent, a significant decrease from the record high of 38 per cent recorded in September 2023. This slowdown defied expectations and is attributed to the flexible exchange rate policy the CBE adopts for the pound, which had already impacted retail pricing before the black market for US dollars was suppressed. Inflationary pressures continued to recede, as annual headline and core inflation edged downward for the fourth month in a row to reach 27.5 per cent and 26.6 per cent in June 2024, respectively. Inflation rates benefited from the combined effect of a gradual dissipation of previous shocks supporting a return to normal dynamics; the recent tightening cycle; and a favorable base effect from the strong inflationary episodes in 2023." the MPC statement read "Despite persistent non-food inflation, the current moderation in inflation has been driven by improvements in market dynamics, as reflected by the significant decline in annual food inflation to 31.9 per cent in June 2024 from a peak of 73.6 per cent in September 2023. Accordingly, the gradual unwinding of food inflation along with the improvement of inflation expectations suggest that inflation is on a sustained downward trajectory," The MPC further added that the recent dampening of inflation dynamics generally suggests "a normalisation to their usual monthly pattern prior to March 2022. While pressures could be expected from possible fiscal consolidation measures, inflation is expected to stabilise in 2024 around its current levels." Significant decline in inflation seen in H1-25 The MPC forecasts a significant decline in inflation in the first half of 2025 "due to the cumulative impact of monetary policy tightening and favourable base effects." "However, upside risks to the forecasted disinflation path remain, including an escalation of current geopolitical tensions, unfavorable climate conditions, both domestically and globally, and higher than anticipated fiscal measures." "The MPC reiterates that the path of future policy rates remains a function of inflation expectations rather than prevailing rates and will not hesitate to utilise all tools at its disposal to ensure that the policy stance is set at sufficiently restrictive levels that allow for a sustained decline in underlying inflation, and safeguard price stability over the medium term." Attribution: CBE statement
