Egypt raises overnight interest rates by 100 basis points to cool off inflation

Egypt’s central bank raised overnight interest rates by 100 base points in a bid by the cash-strapped country to cool down surging inflation.

In a statement issued late Thursday night, the central bank said the overnight lending rate was raised to 20.25 per cent and the overnight deposit rate increased to 19.75 per cent.

The central bank’s Monetary Policy Committee's decision to raise interest rates came as a surprise following analysts' estimates predicting no change in rates.

Thursday’s night’s statement said that the increase was implemented to “contain the inflationary pressures and anchor inflation expectations”.

Over the past year, Egypt’s central bank has sought to offset rising inflation by raising its main interest rates. The last increase was in March, following one in December.

“The MPC judges that inflation rates are likely to peak in the second half of 2023 before beginning a disinflation path towards the CBE's preannounced targets afterwards, supported by the cumulative monetary policy tightening to date,” the statement said.

The Arab world’s most populous nation witnessed its annual urban inflation rate rise to a record 35.8 per cent in June, continuing an upward trend that started in March of last year on the back of the economic repercussions of the Russia-Ukraine war which caused an exodus of foreign currency from the nation’s coffers.

In order to qualify for funding from the IMF, Egypt has devalued its currency three consecutive times since March 2022 with another devaluation expected to take place before the end of the year.

The central bank has been targeting inflation between 5 per cent to 9 per cent by the final quarter of 2023 and 3 per cent to 7 per cent by the end of 2026.