Banking & Finance Egypt raises interest rates by 200 bps to tame inflation By Reuters March 31, 2023 Reuters/Mohamed Abd El Ghany The AMF is keen to continue the partnership with the Egyptian government to help it with structural and economic reforms The Central Bank of Egypt (CBE) raised its overnight interest rates by 200 basis points (bps) on Thursday following a meeting of its monetary policy committee (MPC), saying it aimed to bring high inflation into check. The bank set the lending rate at 19.25 percent and the deposit rate at 18.25 percent. The median forecast in a Reuters poll of 15 analysts on Monday was for the bank to increase rates by 200 bps as it struggled to control surging inflation. Seven of the analysts expected an increase of 300 bps. In February, headline inflation soared to a five-and-a-half-year high of 31.9 percent from 25.8 percent in January. Core inflation in February rose to a record high of 40.3 percent. “The MPC stresses that achieving a tight monetary stance is a necessary condition to attain the CBE’s upcoming inflation targets of seven percent (± two percentage points) on average by 2024 Q4 and five percent (± two percentage points) on average by 2026 Q4,” it said in a statement. Domestic supply chain disruptions, a depreciating Egyptian pound, demand side pressures “as evidenced by developments in real economic activity relative to potential capacity” and high broad money growth outturns fuelled inflation, the statement said. Since last March, the Egyptian pound’s official exchange rate has fallen by almost half, to around 30.87 pounds to the dollar, after Russia’s invasion of Ukraine exposed vulnerabilities in the country’s finances, prompting a foreign exodus from its treasuries market. On the black market it has sunk to between 35 and 36 to the dollar. M2 money supply, which in Egypt includes deposits in foreign currency, grew by 31.6 percent year-on-year in January and 31.5 percent in February. At its last meeting on February 2, the central bank left interest rates steady, saying 800 bps in rate hikes put in place over the previous year would help to tame inflation, which in December had accelerated to a five-year high of 21.3 percent. The MPC statement said gross domestic product had slipped to 3.9 percent in the fourth quarter of 2022 from 4.4 percent in the third quarter. “Real GDP growth is expected to soften in fiscal year 2022/23 compared to the previous fiscal year, before picking up thereafter.” Egypt’s fiscal year ends on June 30.