Why did Egypt cut interest rates?

For the first time since last February, after lower than expected inflation, the Egyptian central bank lowered its key rates by 150 basis points on Thursday, explaining four reasons why it had made such a decision.

The bank's monetary policy committee announced in a statement that it had decided to reduce the 24-hour deposit rate from 15.75 percent to 14.25 percent and the 24-hour loan rate from 16, 75% to 15.25%.

According to the MPC press release, the decline in the annual rate of core inflation and core inflation continued "to 8.7% and 5.9% in July 2019, the rate the lowest for nearly four years, despite the state's recently introduced fiscal control measures. This has covered the cost of most petroleum products. "

In its statement, the Policy Committee attributed low interest rates to four factors, the first of which was "the control of inflationary pressures, reflected in relatively low monthly inflation rates, as well as in the inflation rate". the positive impact of the base year, as the fiscal consolidation measures recently implemented are weaker than in the previous year ".

“ At the same time, preliminary data indicate a slight increase in real GDP growth to 5.7% in the second quarter of 2019 and to 5.6% for the 2018/2019 fiscal year, the highest rate high recorded since the year financial statements.

The committee also decided to cut interest rates for a second reason: the fall in the unemployment rate, which "stood at 7.5% in the second quarter of 2019, which represents a decrease about six percentage points from its peak of 13.4% in the fourth quarter of 2013 ".

The MPC's statement also cited a third reason for the "continued slowdown in the growth rate of the global economy and the negative impact of trade tensions on growth prospects, which helped to ease the situation. global financial market by reducing the core interest rates of a number of central banks ".

In addition, the Committee cited the fourth reason for the recent decline in world oil prices, which remain vulnerable to volatility "due to regional risks as well as other supply-side factors".

"Given the continued control of inflationary pressures and all developments at the national and international levels, the Monetary Policy Committee has decided to reduce the central bank's base rate of return by 150 basis points. with the achievement of the target inflation rate of 9% in the fourth quarter of 2020 and price stability in the medium term. "

The committee pointed out that it would continue to "make decisions based on expected future inflation rates, and not prevailing inflation rates." Therefore, the pace and rate of inflation will be higher. extent of future adjustments to the core rate of return of the Central Bank will continue to depend on the consistency of inflation expectations with target rates, in order to ensure the continuity of the course downward objective for the stability of medium-term price. "

The committee noted that it would continue to "monitor all economic developments" without hesitation to "change its policy to maintain monetary stability".