The Central Bank of Egypt said in a statement on Monday that Raising key interest rates by 100 basis points at an extraordinary meeting of the Monetary Policy Committee.
The central bank set the overnight lending rate at 10.25% and the overnight deposit rate at 9.25%, citing global inflationary pressures exacerbated by the war in Ukraine.
The Monetary Policy Committee was scheduled to meet on March 24.
The Monetary Policy Committee of the Central Bank of Egypt added, “The rise in international commodity prices resulting from further disruptions in the supply chain in addition to the increased sense of risk aversion has increased domestic inflationary pressures as well as external imbalances.” In order to maintain the macroeconomic stability that has been achieved, the Central Bank of Egypt stresses the importance of exchange rate flexibility as a shock absorber to maintain Egypt’s competitiveness.
The Monetary Policy Committee of the Central Bank of Egypt decided at its extraordinary meeting today to raise the overnight deposit and lending rates and the central bank’s main operation rate by 100 basis points to reach 9.25%, 10.25% and 9.75%, respectively. The credit and discount rate was also raised by 100 basis points to 9.75%.
A combination of rising commodity and energy prices and a wave of global monetary tightening have added to pressure on the Egyptian economy, one of the most indebted countries in the Middle East. Credit rating agency Fitch said last week that the Ukraine war would lead to “lower tourist inflows, higher food prices, and greater financing challenges.”
Urban inflation in Egypt reached 8.8% in February, the highest level since mid-2019, prompting expectations of a rate hike.
According to data obtained by Al-Arabiya Net, the Egyptian pound is trading today, Monday, at 17.42-17.52 against the dollar, following a sudden and exceptional interest rate hike by the Central Bank of Egypt.
The central bank set the overnight lending rate at 10.25% and the overnight deposit rate at 9.25%, citing global inflationary pressures exacerbated by the war in Ukraine.
Just days ago, the average price of the dollar in Egypt, according to the data of the Central Bank of Egypt, recorded about 15.66 pounds for purchase, and 15.77 pounds for sale. In banks, the average price of the dollar was about 15.66 pounds for purchase, and 15.76 pounds for sale.
The Central Bank said that on top of these pressures comes the noticeable rise in global commodity prices, supply chain disruptions and rising shipping costs, in addition to the fluctuations in financial markets in emerging countries. Which led to domestic inflationary pressures and increased pressure on the external balance, according to the statement.
He continued, “The Central Bank believes in the importance of exchange rate flexibility to serve as a tool to absorb shocks and maintain Egypt’s competitiveness.”
He added that in light of these developments; Considering the central bank’s target inflation rate of 7% (with a deviation of 2% down and up) on average during the fourth quarter of 2022; The Monetary Policy Committee decided to raise the key interest rates of the central bank by 100 basis points.
The Monetary Policy Committee stresses that achieving low and stable inflation rates in the medium term is a prerequisite for supporting the purchasing power of the Egyptian citizen and achieving high and sustainable growth rates.
The committee will closely follow all economic developments and will not hesitate to use all its monetary tools to achieve the goal of price stability in the medium term.
Noaman Khaled, Assistant Director and Macroeconomic Analyst at Arqaam Capital Company, said that the meeting held by the Central Bank of Egypt today is an exceptional meeting, and the interest rate hike came below our expectations, but the issuance of savings certificates that were announced by Al-Ahly and Egypt banks compensated for this matter.
He pointed out that raising the interest rate and moving the exchange rate comes after foreign investors exited the debt instruments and the Egyptian Stock Exchange, in addition to the arrival of foreign liquidity in banks to low levels.
He explained that the reason for holding an exceptional meeting before its scheduled meeting next Thursday, is that there should be harmony between all economic decisions represented in moving the currency rate and issuing high-return savings certificates.
He explained that all expectations were indicating a decrease in the value of the pound by a maximum of 15%, and after devaluing the local currency to this level and issuing certificates of deposit at a level higher than this reduction by 4 to 5%, this means that the certificates of deposit that were announced will attract high liquidity, as It may result in dollars being sold and transferred to those certificates.