Coming in the Horizon: 2024 Monetary Updates
Updated 12/19/2023 8:00:00 AM
As 2023 comes to an end, people are looking forward to the new year and anticipating Egypt’s monetary policies in 2024. In 2023, Egypt witnessed high inflation rates, which caused a remarkable increase in interest rates. Accordingly, 2024 looms on the horizon with some changes in inflation rates, along with monetary policies to face global and local challenges.
Monetary Policy Review of 2023
In 2023, Egypt's monetary policies and decisions were focused on a permanent shift to a flexible exchange rate and inflation control. The Central Bank of Egypt (CBE) raised interest rates multiple times. In March, the CBE raised its overnight deposit, overnight lending, and main operations rates to 18.25%, 19.25%, and 18.75%, respectively, following a 200-basis point hike, according to the CBE’s website.
In June, the CBE extended its tightening cycle pause, keeping the rates at 18.25%, 19.25%, and 18.75%. The CBE's decision was driven by the sharp acceleration of headline and core inflation, as well as robust real-sector data.
The CBE's decision to keep interest rates unchanged in November came after a total of 11% hikes introduced throughout the year. The CBE's monetary policy decisions were influenced by factors, such as inflation, real gross domestic product (GDP) growth, and global economic conditions.
As 2023 closes, the US Federal Bank decided to hold interest rates steady, which might have some impact on the CBE decisions. “The CBE will likely take into account the current economic conditions in Egypt, such as inflation rates, GDP growth, and exchange rate stability. These factors often influence interest rate decisions,” Ahmed Fawzy Hussein, PhD Holder and Assistant Professor in Economics, tells Arab Finance.
Hussein adds that “considering the US Federal Reserve's decision to hold rates steady, the CBE might also assess the impact of this decision on the Egyptian economy. If the CBE believes that the US decision will have a positive impact on Egypt's economy, it might consider maintaining or reducing interest rates to stimulate economic growth and investment."
The CBE’s Monetary Policy Committee (MPC) will have its last meeting in 2023 on December 21st. In a poll by Arab Finance, 63% of participants expected the MPC to keep interest rates unchanged at its next meeting.
Inflation Expectations for 2024
Egypt's average inflation is expected to decline to 27.4% in 2024 from 34.1% in 2023, according to a report by BMI Research, a subsidiary of Fitch Solutions. The report predicts that the CBE would take measures to address the economic crisis. Moreover, the International Monetary Fund (IMF) has raised its projections for Egypt's inflation in 2023 and 2024.
Meanwhile, a Reuters poll results published in October showed that "the median forecast for the current fiscal year (FY) was for average inflation to ease to 33.75%, then drop to 20.15% in FY 2024/2025."
Accordingly, the CBE is expected to address interest rates in order to deal with inflation. Hussein explains that "while traditional monetary policies, including interest rate increases, can be effective tools to control inflation, they are not the only solutions available. Other measures that can help control inflation include fiscal policies (such as government spending and taxation), supply-side reforms, and targeted interventions in specific sectors.”
“Enhancing productivity, improving resource allocation, and maintaining stable exchange rates” Hussein further highlights as ways to control inflation, adding that they are “depending on the prevailing economic conditions and the specific challenges faced by the country."
2024 Monetary Policies Expectations
With 2024 approaching, the country’s monetary policies may face some challenges due to surrounding global events. Hussein says that “some of these challenges could be external factors, such as global economic uncertainties, fluctuations in commodity prices, and changes in international financial markets. Domestically, challenges may arise from fiscal imbalances, government debt, or political instability.”
In order for Egypt to face the challenges posed by the surrounding global circumstances, the country will need additional funds. "It is clear that additional financing will be critical to ensure the success in the implementation of the policy package for Egypt. The discussions of the exact size of financing is part of the ongoing discussions that [the International Monetary Fund] IMF staff is having with the Egyptian authorities," Julie Kozak, director of the IMF's Communications Department, stated in a press briefing on December 7th.
To face the upcoming challenges, "Egyptian authorities could consider implementing a mix of policies. These may include maintaining a prudent fiscal policy, strengthening domestic institutions, implementing structural reforms to boost productivity and competitiveness, and enhancing coordination between the fiscal and monetary authorities. It is also essential to ensure transparency and clear communication to maintain the confidence of investors and the public," Hussein points out.
Meanwhile, "looking ahead to 2024, the CBE's direction will depend on the evolving domestic and global economic conditions. Factors such as inflation, GDP growth, foreign exchange reserves, and global economic trends will shape future monetary policies. It is important to closely monitor these indicators and consider their potential impact on interest rates," Hussein highlights.
Despite the forecasted challenges in 2024, Egypt is expected to take every possible step and address monetary decisions to face these challenges. This comes as 2023 has witnessed a number of decisions regarding interest rates to control inflation.
By Sarah Samir
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