The Central Bank Raises Interest Rates by 6% in an Extraordinary Meeting

The Central Bank of Egypt has announced a 6% increase in interest rates following an extraordinary meeting held today, Wednesday.

In a statement, it highlighted the recent impact of foreign currency shortages on the Egyptian economy, leading to the emergence of a parallel exchange rate market and a slowdown in economic growth. This has been compounded by external factors such as global inflationary pressures and successive shocks to the global economy.

Despite recent slowing in annual inflation rates, the Central Bank anticipates surpassing its target rate of 7% (± 2 percentage points) on average during the fourth quarter of 2024.

In its commitment to maintaining price stability and supporting sustainable development, the Central Bank aims to shift towards a more flexible framework for targeting inflation, while allowing the exchange rate to be determined by market mechanisms.

The decision to unify the exchange rate is deemed crucial in eliminating the accumulation of demand for foreign exchange following the gap closure between official and parallel market rates.

As part of its monetary restriction policy, the Monetary Policy Committee raised overnight deposit and lending rates, as well as the Central Bank’s main operation rate, by 600 basis points, reaching 27.25%, 28.25%, and 27.75% respectively. Additionally, credit and discount rates were raised by 600 basis points to reach 27.75%.

Building on a previous decision to raise basic interest rates by 200 basis points, the committee accelerated the monetary restriction process to hasten inflation’s descent and ensure a decline in monthly inflation rates.

The Monetary Policy Committee stresses the importance of controlling inflationary expectations and raising basic interest rates to achieve positive real rates of return.

While acknowledging potential short-term declines in real credit to the private sector due to monetary restrictions, the Central Bank recognizes that inflationary pressures pose a greater threat to private sector stability and competitiveness. Therefore, achieving price stability is seen as essential for fostering investment and sustainable growth in the medium term.