Egypt’s Central Bank Expected To Raise Interest Rates By 150 Basis Points

According to Reuters, Egypt’s Central Bank is expected to raise interest rates by 150 basis points. The move is expected even as Egypt keeps battling inflation and currency devaluation.

According to the poll which featured 13 analysts, the Central Bank of Egypt is expected to raise its deposit rate to 17.75% and lending rate to 18.75%. This predicted move is coming after the CBE raised the rates by about 200 bps after its MPC meeting on October 27, and raised it again by 300 bps on December 22.

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Since the start of the Russia-Ukraine war, Egypt has gone through economic difficulties, the country’s import bill increased drastically, and its debt-to-GDP ratio rose astronomically. To help alleviate the economic pressure the country was under, the Egyptian government sought a $3 billion financial rescue package from the IMF. Due to the IMF loan conditions, the Egyptian Central Bank adopted a more flexible exchange rate for the Egyptian Pound, causing the currency to lose more than half its value since March 2022. As Egypt is the number one importer of food in Africa, this drop in the Egyptian Pound has resulted in major inflation in food prices, as food inflation hit 37.9% in December 2022.

Due to the global economic shakedown resulting from the Russian invasion of Ukraine, Egypt lost a number of global investors. And the tourism sector which is the country’s major source of foreign exchange was hit. The country’s inflation rate hit a five-year high of 21.3% in December 2022 as the country is going through its worst economic turmoil since the Arab rising.

Speaking on the projected rise in interest rates, Noaman Khaled, an economist at NBK noted, “We expect the CBE to hike policy rates this Thursday by at least 100 bps. “We see it as important for the CBE to act before the inflation print comes out next week which we anticipate at around 23-24%.” He added.

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However, there are differing opinions about the interest rate hike. According to HC securities, one of the leading investment banks in the Middle East and North African region, “We expect the MPC to keep the policy rates unchanged to allow the market to absorb the 300 bps hike of the 22 December 2022 meeting.”

By December 2022, IMF announced that it had approved a 46-month $3 billion loan for Egypt. According to the institution, the fund is meant to serve as a buffer for the private-sector-led growth of the Egyptian economy. However, it remains to be seen what level of relief the IMF loan would provide for Egyptians.