Egypt’s central bank raises interest rates by 2% to tame inflation 

Egypt’s central bank hiked key interest rates by 2% on Thursday, aiming to curb rising inflation despite signs of an economic slowdown.

The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) raised the overnight deposit rate, overnight lending rate, and the rate of the main operation by 200 basis points to 21.25%, 22.25%, and 21.75%, respectively. The discount rate was also raised by 200 basis points to 21.75%.

The move comes as global economic growth slows and central banks worldwide tighten monetary policy to combat inflation. While inflation has eased in some advanced and emerging economies, the MPC highlighted geopolitical tensions and trade disruptions in the Red Sea as major concerns for Egypt’s inflation outlook.

Economic Growth Slowing, Unemployment Stable

Real GDP growth in Egypt dipped to 2.7% in the third quarter of 2023, with trade, agriculture, and communication sectors providing the main support. Leading indicators suggest a further slowdown in the fourth quarter, with the full-year outlook impacted by regional instability and Red Sea trade disruptions. However, the unemployment rate remained stable at 7.1% in Q3.

Inflation Decelerating, But Risks Remain

Annual headline and core inflation declined to 33.7% and 34.2% in December 2023, respectively. However, recent data points towards higher-than-expected monthly inflation and sustained pressures, particularly in non-food and food categories. Elevated broad money growth further compounds these concerns.

MPC Justifies Rate Hike

The MPC acknowledged that incoming data, including recent inflation figures, exceeded expectations. They emphasized persistent inflationary pressures, geopolitical uncertainty, and maritime trade disruptions as factors tilting the inflation risk balance upwards.

Policy Outlook

The Central Bank of Egypt committee stressed its commitment to anchoring inflation expectations and achieving price stability over the medium term. They will continue monitoring the inflation outlook and are prepared to utilize all available tools, including further interest rate hikes, to maintain a tight policy stance and manage liquidity conditions.

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