Egypt’s central bank raised the benchmark interest rate by 100 basis points today, citing global inflationary pressures and the situation in Ukraine as reasons.
This is according to a press release from the Egyptian Centre Bank titled “Special MPC meeting: MPC decides to raise key policy rates by 100 basis points.”
The deposit rate was raised to 9.25%, and the lending rate was raised to 10.25%, following an emergency meeting of the bank’s Monetary Policy Committee.
What the Egyptian Central Bank is saying
The document read ”In its special meeting today, the Monetary Policy Committee (MPC) decided to raise the overnight deposit rate, the overnight lending rate and the rate of the main operation by 100 basis points to 9.25 per cent, 10.25 per cent, and 9.75 per cent, respectively. The discount rate was also raised by 100 basis points to 9.75 per cent.”
The CBE’s reason for the uptick in interest is as a result of the global inflation and supply disruptions caused by the Russia-Ukraine conflict. The CBE said, “global inflationary pressures began to build after the world economy emerged from the disruptions caused by the COVID-19 pandemic. These pressures became amplified with the recent Russia-Ukraine conflict. Rising international commodity prices resulting from further supply chain disruptions in addition to increased risk-off sentiment have added to domestic inflationary pressures as well as external imbalances.”
The bank added, ”Being keen on safeguarding the achieved macroeconomic stability, the CBE stresses on the importance of the exchange rate flexibility to act as a shock absorber to preserve Egypt’s competitiveness.”
What you should know
- According to Fitch Ratings, Egypt will face fewer tourism inflows, higher food costs, and greater financial issues as a result of Russia’s invasion of Ukraine. Egypt’s vulnerability to withdrawals of non-resident investment from its local-currency bond market has been exacerbated by the crisis.
- There were around $5 billion of net outflows in September-December, and further outflows accompanied news of the Ukraine conflict. Spreads on Egypt’s sovereign debt spiked in late February and remained around 130bp higher on 15 March than at end-2021, according to JP Morgan.
- Egypt’s annual urban consumer price inflation surged to its highest in nearly three years in February, driven by a sharp increase in food prices, figures from the state statistics agency CAPMAS.
- Inflation rose to a higher-than-expected 8.8% year on year from 7.3% in January, putting it near the upper limit of the central bank’s 5-9% target range and indicating that the bank’s monetary policy committee increased interest rates in response.
The ministry expects growth to reach 5.6% this fiscal year, Planning Minister Hala Al-Saeed said in November. Egypt is aiming for 5.7% growth in its 2022/23 fiscal year draft budget, Finance Minister Mohamed Maait said.