Egypt’s Central Bank raises interest rates by 200 basis points to curb inflation

CAIRO

The Central Bank of Egypt on Thursday said it raised overnight interest rates by 200 basis points, a move meant to ease inflation.

The Monetary Policy Committee (MPC) raised the overnight deposit rate, overnight lending rate, and the rate of the main operation to 21.25%, 22.25%, and 21.75%, respectively, it said in a statement. The discount rate was also raised to 21.75%.

The decision comes as Egypt and the IMF are engaged in talks to revive and expand a $3 billion loan agreement signed in December 2022.

The economic crisis in the country has put pressure on the Egyptian pound, which is around 30.9 per dollar officially. But in the black market, the currency is trading at between 65 and 70.

"The IMF team and the Egyptian authorities have agreed on the main policy elements of the program. The authorities expressed a strong commitment to act promptly on all critical aspects of Egypt's economic reform program," IMF mission chief for Egypt Vladkova Hollar said in a statement on Thursday.

Earlier, IMF chief Kristalina Georgieva said, "working with Egypt is a very high priority" and the fund and Egypt are in the "very last stretch" of negotiations.

The Central Bank said “widespread inflationary pressures remain elevated, continuing to impact pricing and consumption behaviours,” adding that “geopolitical uncertainty and ongoing maritime trade disruptions continue to raise domestic and global inflationary pressures.”

“Against this background, the MPC judges that the balance of risks surrounding the inflation outlook has tilted to the upside,” it said. “Consequently, the MPC decided that raising policy rates by 200 basis points is warranted to anchor inflation expectations and set the policy rate at sufficiently restrictive levels, in order to ensure a decelerating inflation trend.”

Annual inflation in Egypt slowed to 35.2% in December, down from 36.4% in November.