Egipto Actividad económica May 2023

Egipto: Central Bank surprises markets by pausing its tightening cycle in May

At its 18 May meeting, the Central Bank of Egypt (CBE) paused its tightening cycle and held fire. Consequently, the overnight deposit, overnight lending and main operations rates stood at 18.25%, 19.25% and 18.75%, respectively. The move came on the heels of March’s 200 basis point hike, taking markets by surprise; a 100 basis point increase had been penciled in.

The Bank’s decision was driven by the first deceleration of headline inflation since June 2022 and the second consecutive month of softening core inflation in April. The Bank noted that the moderations reflected easing inflationary shocks—such as domestic supply-chain disruptions—but also a favorable base effect. The Bank reiterated, however, that the policy rate remains contingent on inflation forecasts rather than historical data. Consequently, the CBE assesses a tight policy stance is necessary to bring inflation to its 5.0–9.0% target band by Q4 2024 and 3.0–7.0% by Q4 2026.

Furthermore, the policy committee is still assessing the economic impact of the cumulative 1,000 basis points worth of increases since March 2022, calling for a pause in further tightening. That said, the CBE acknowledged that high-frequency data suggests the economy likely slowed in Q1 2023.

In its communiqué, the CBE did not provide hints on future policy moves, but the tone remained hawkish. The Consensus among our panelists is for further tightening this year.

The next scheduled monetary policy meeting is set for 22 June.