CBE hikes key interest rates by 2%

Doaa A.Moneim , Thursday 1 Feb 2024

The Central Bank of Egypt has raised the key interest rates by two percent.

CBE

 

Accordingly, the overnight deposit rate, the overnight lending rate, and the main operation rate were raised to 21.25 percent, 22.25 percent, and 21.75 percent, respectively. In addition, the discount rate was raised by 200 basis points to 21.75 percent.

This hike brings the total hikes applied to the key interest rates in Egypt to 13 percent (1300 bps) since March 2022 and to five percent (500 bps) since March 2023.

The decision has been taken mainly to counter the rising inflationary pressure the country is suffering.

The move comes whilst a mission from the International Monetary Fund (IMF) is currently in Egypt in a bid to accelerate the almost-standstill $3 billion loan deal, approved in December 2022, and discuss a possible financial package for the country to support its economy against the impacts of regional and global disruptions.

“Annual headline and core inflation have continued to decelerate, recording 33.7 percent and 34.2 percent, respectively, in December 2023, primarily due to favourable base effects,” said the CBE.

Yet, the CBE highlighted that recent developments indicate higher-than-expected monthly dynamics and sustained inflationary pressures.

Non-food and food inflation, the CBE said, has remained persistent, influenced by fiscal consolidation measures and ongoing supply-side pressures, while elevated broad money growth, running above its historical average, has further contributed to inflationary pressures.

The CBE noted that Egypt's real GDP growth registered 2.7 percent in the third quarter of 2023, slightly lower than in the previous quarter, driven by positive contributions of the trade, agriculture, and communication sectors.

However, the indicators in the fourth quarter of 2023 point to a general slowdown, said the CBE.

Moreover, it predicted that the spillover effects from ongoing regional tensions and maritime trade disruptions in the Red Sea are expected to impact the services sector in the country.

On the global level, the CBE mentioned that the world economic landscape has witnessed a slowdown in growth due to the repercussions of the policy rate tightening adopted by major central banks on overall demand.

Meanwhile, ongoing monetary policy tightening cycles in advanced and emerging market economies have alleviated inflationary pressures globally.

“Forecasts for inflation in these economies have been revised downwards compared to previous assessments. However, the escalation of geopolitical tensions and persistent trade disruptions in the Red Sea have introduced uncertainties surrounding the inflation outlook. This includes concerns regarding supply-chain shocks and their potential impact on key commodity prices,” the CBE explained.

It attributed the recent rate increase to ensuring a decelerating inflation trend, stressing that the MPC remains committed to achieving price stability over the medium term.

Similarly, the CBE said it will continue to monitor the balance of risks surrounding the inflation outlook and utilize all available tools to maintain a tight policy stance, adjusting liquidity conditions as necessary.

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