Egypt’s central bank hiked its overnight interest rates by 200 basis points (bps) on Thursday, following a meeting of the Monetary Policy Committee (MPC), as authorities seek to bring down inflation to sustainable levels.
Central Bank of Egypt (CBE) said in a statement that the MPC raised the deposit rate to 18.25% and the lending rate to 19.25%. The discount rate was also raised by 200 basis points to 18.75%.
The interest rate increase is the first this year after the central bank kept its monetary policy unchanged in February. The central bank is resuming a cycle of monetary tightening after a surprise pause last month as food prices in Egypt have soared to hit record highs and further squeezing consumers in the North African country.
“The MPC stresses that achieving a tight monetary stance is a necessary condition to attain the CBE’s upcoming inflation targets of 7% (± 2 percentage points) on average by Q4 2024 and 5% (± 2 percentage points) on average by Q4 2026,” the central bank said in a statement.
Egypt’s inflation accelerated faster than expected in February to an annual 31.9%. The figure reflects three devaluations of the pound after the war Ukraine tipped Egypt into an economic crisis and caused a foreign-exchange crunch.
CBE identified domestic supply chain disruptions, a depreciating pound, demand side pressures “as evidenced by developments in real economic activity relative to potential capacity” and high broad money growth outturns as main drivers of inflation.
The latest hike may help a return on portfolio investment after Egypt’s official borrowing costs turned deeply negative when adjusted for inflation, said a Bloomberg report.
