African Reserves Loans

The Central Bank of Egypt announces a 2% hike in interest rates

In a statement released on Thursday morning, the CBE attributed its decision to strong global and domestic prices which should keep headline inflation above the MPC’s announced target of seven percent (±2 percent) on average. until the fourth quarter of 2022.

The decision aims to maintain the CBE’s mandate to ensure price stability in the local market in the medium term, the statement noted.

It also aims to anchor inflation projections and contain demand-side pressures and stronger broad money growth as well as second-round effects of supply shocks.

The CBE also announced in the statement that it will begin a process of phasing out letters of credit (LC) for import financing by December 2022.

“The global economy has faced multiple shocks and challenges, the likes of which have not been seen in years. Recently, global markets were subjected to the COVID19 pandemic which brought the world under control, followed by the Russian-Ukrainian conflict, which had serious economic ramifications. Therefore, Egypt has withstood large capital outflows and rising commodity prices,” the CBE said.

To address the multiple economic challenges, the government has intensified a reform program to ensure macroeconomic stability and achieve strong, sustainable and inclusive growth.

To this end, the CBE used a permanently flexible exchange rate regime, leaving it to the forces of supply and demand to determine the value of the EGP against other foreign currencies.

Thursday’s decision prioritizes price stability and building up adequate and sustainable levels of foreign exchange reserves, according to the CBE.

“This will serve as a catalyst for the rejuvenation of economic activity in the medium term. In addition, the CBE will strive to lay the foundation for a derivatives market to further deepen the foreign exchange market and improve its liquidity,” the CBE explained.

The CBE pointed out that the MPC will continue to announce inflation targets along the pre-determined disinflation path that started in 2017, which was on track until the recent global shocks.

He pointed out that achieving low and stable inflation over the medium term sustains real incomes and sustains the competitiveness gains achieved by the Egyptian economy.

The central bank added that it will continue to closely monitor all economic developments and will not hesitate to act in order to ensure price stability.

Including today’s hike, the CBE raised key interest rates by an unprecedented 5% since the start of the Russian-Ukrainian conflict in February.

During the three-day economic conference, which ended on Tuesday, CBE Acting Governor Hassan Abdallah said the bank’s priority in the current phase was to rein in inflation rates and maintain price stability in the local market.

Egypt is currently in talks with the International Monetary Fund (IMF) for a new loan agreement under a new economic reform program which is expected to be finalized before the end of 2022.

The two remaining MPC meetings in 2022 are scheduled for November 3 and December 22.

Following this decision, the Egyptian pound fell to its lowest level against the US dollar since the implementation of the economic reform program in November 2016, with the exchange rate exceeding 20 EGP per dollar.

At the same time, the National Bank of Egypt (NBE) issued new savings certificates with a three-year maturity with an annual yield of 17.25%.

Banque Misr also increased the annual yield of 3-year cash certificates to 17.25%

Egypt’s annual headline inflation rose to 15.3% in September from 8% in September 2021, the highest level since recording 15.7% in November 2018.

On Wednesday, the government raised the minimum wage for public employees from EGP 2,700 to EGP 3,000 to meet increases in the cost of living.

The government has also frozen electricity prices for households until June 2023.