3 reasons behind fixing interest rates in Egypt

The Monetary Policy Committee of the Central Bank of Egypt decided to maintain the overnight deposit and lending rate and the central operation rate at 8.25, 9.25 and 8.75% levels, respectively, and fix the credit and discount rate at 8.75%.

In justifying the stabilization decision, the Central Bank of Egypt said that the Monetary Policy Committee considers that the basic return rates of the Central Bank are appropriate at the present time and consistent with achieving the target inflation rate of 7% (± 2 percentage points) on average during the fourth quarter of 2022. And with the target of price stability in the medium term.

She explained that the annual rate of general urban inflation decreased to 5.4% in December 2020 from 5.7% last November, mainly driven by the decline in the prices of fresh vegetables.

This is due to both the seasonal pattern of fresh vegetable prices, in addition to the partial fading of the supply shock in tomato prices in November 2020. The annual rate of core inflation fell to 3.8% in December 2020, compared to 4% in November 2020.

According to these figures, the annual general inflation rate in urban areas reached an average rate of 5.2% during the fourth quarter of 2020, which is less than the minimum target range of 6% announced in 2018.

The committee said that the deviation from the target range is due to both the impact of the spread of the Corona pandemic and the accompanying precautionary measures on economic activity, in addition to the Egyptian government taking several measures to avoid any shortage resulting from the supply of goods in the market, which also contributed to reducing inflation rates. .

She indicated that, given the risk balances, the Central Bank of Egypt has taken several measures proactively in order to support economic activity in line with achieving the objective of price stability in the medium term.

The committee touched on the growth rates, as preliminary data indicate that the real growth rate of the gross domestic product recorded 0.7% during the third quarter of 2020, compared to -1.7% during the second quarter of the same year.

Some preliminary indicators on the demand side continued to recover during the fourth quarter of 2020, and the unemployment rate decreased to 7.3% during the third quarter of 2020, compared to 9.6% during the second quarter of the same year.

With regard to the third reason at the global level, where economic activity remains weak despite the easing of global financial conditions, as a result of the negative impact of both the second wave of the spread of the Corona pandemic and the accompanying precautionary measures on the global economic prospects in the near term, according to the Monetary Policy Committee.

The committee indicated that the path of the global economic recovery depends greatly on the effectiveness, availability and speed of distribution of vaccines for the Corona pandemic, which in turn may alleviate the uncertainty prevailing in the medium term, and at the same time, global oil prices continued to rise, driven by developments on the part of Display.

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