Egypt’s central bank holds rates despite record inflation

In its first meeting of 2023, the monetary policy committee kept interest rates steady after raising them by 800 basis points last year

The Central Bank of Egypt. Photo: EPA
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The Central Bank of Egypt kept interest rates steady at its first meeting of the year on Thursday, despite soaring inflation.

The bank’s monetary policy committee kept its overnight deposit rate, overnight lending rate and the rate of the main operation at 16.25 per cent, 17.25 per cent and 16.75 per cent, respectively.

The discount rate was also held at 16.75 per cent.

"The MPC decided to maintain key policy rates unchanged in today’s meeting in order to assess the impact of the implemented front-loaded tightening policies in a data-driven manner," the committee said on Thursday evening.

Most analysts expected an interest rate increase of between 100 and 200 basis points, while others forecast the rate would remain unchanged due to recent rises.

In 2022, the committee raised rates by a combined 800 basis points in four of its eight meetings, including two special meetings in March and October.

At its last meeting in December, the regulator increased rates by a larger-than-expected 300 basis points, after a 200-point cut in October.

"The CBE decided to wait and test the impact of previous rate hikes on inflation," Noaman Khaled, an economist with the National Bank of Kuwait, told The National.

"We continue to expect that there will need to be further rate hikes, crucial to bring down inflation in the coming months."

Russia’s invasion of Ukraine last February has had a devastating effect on Egypt’s economy, leading to a higher import bill, declining foreign currency reserves and record inflation.

The country’s annual urban consumer inflation rose sharply in December to 21.3 per cent, its highest level in five years.

The International Monetary Fund approved a $3 billion loan for Egypt, provided it enacts reforms and commits to a permanent shift to a flexible exchange rate.

Egypt has allowed its currency to depreciate by nearly 50 per cent over the past year, with the official rate of the pound now at 30 to the dollar.


The central bank said forecasts for international commodity prices had marginally tightened compared to those underlying its previous meeting.

It said financial conditions had continued to ease for the US economy and "broadly stabilised" in the eurozone.

At the same time, the outlook for international commodity prices remains uncertain, as "several factors contribute to upside and downside pressures".

They include the expected global economic slowdown, the loosening of Covid-19 restrictions in China and the Russia-Ukraine war, the MPC said.

The average annual headline inflation recorded 18.7 per cent during the fourth quarter of 2022, compared to its target of about 7 per cent.

The central bank is aiming for the 7 per cent rate, plus or minus 2 percentage points, by the fourth quarter of 2024. That matches the IMF’s forecast that inflation will ease to about 7 per cent by fiscal year 2024-25.

But analysts anticipate that inflation has not yet reached its peak.

Mr Khaled said consumer inflation figures due out next week could come in at about 23 to 24 per cent.

Naeem Holding also expects inflation to increase in January to about 23 per cent, "due to the fresh pass-through impacts of the 16 per cent EGP devaluation since the start of the new year".

Inflation could peak in March because of an expected 10 per cent rise in fuel prices and "our assessment that the EGP [Egyptian pound] is close to equilibrium in the interbank market, anticipating no major swings from the current level", the investment bank said in a research note on Thursday.

Amr Elalfy, head of research at Cairo-based Prime Holding, said he expected the central bank would increase rates in March.

“The rationale is that inflation will stay higher for longer, peaking in Q1 2023 and coinciding with the Ramadan season before moderating in H2 2023,” he told The National.

Egypt opened Ramadan markets offering basic commodities at cheaper prices in January, nearly three months before the holy month, to help ease inflationary pressures.

Nearly one third of the country’s 104 million people live in poverty.

In an effort to preserve foreign currency supplies, many banks have placed limits on foreign cash withdrawals and the government has postponed some national projects.

Banque Misr and the National Bank of Egypt issued certificates of deposit with a record 25 per cent annual yield last month, pulling in 460 billion pounds ($15 billion) until they were taken off the market on Tuesday.

Updated: February 06, 2023, 10:25 AM