The Monetary Policy Committee (MPC) decided, on Thursday, to cut the Central Bank of Egypt's (CBE) overnight deposit rate, overnight lending rate, and the rate of the main operation by 100 basis points to 15.75%, 16.7%, and 16.25%, respectively. The discount rate was also cut by 100 basis points to 16.25%. According to CBE's statement, headline and core inflation rose to 12.7% and 8.6% in January 2019, respectively, due to unfavorable base effects.
This comes after headline inflation declined to 12.0 percent in December 2018 due to the reversal of the transitory supply shock related to select vegetables. As a result, the CBE's first inflation target of 13 percent (±3 percent) for 2018 Q4 that was announced in May 2017 has been achieved. While real GDP growth increased slightly to 5.5% in 2018 Q4 from 5.3% in 2018 Q3, and the unemployment rate declined to 8.9% down from 10.0%, its lowest level since December 2010. Furthermore, the statement indicates that net external demand continued to support economic activity while private domestic demand remained contained. While, the expansion of global economic activity weakened, and the tightening of financial conditions eased, and trade tensions continued to weigh on the global outlook. "MPC decided to cut key policy rates by 100 basis points This remains consistent with tight real monetary conditions and with achieving the inflation target of 9 percent (±3 percent) in 2020 Q4 and price stability over the medium term," the statement concluded.
