CBE hikes interest rates 2% to curb soaring inflation

CAIRO - 6 July 2017: The Central Bank of Egypt (CBE) unexpectedly decided Thursday to raise interest rates by 200 basis points (two percent), in an attempt to tame a new inflation wave on the back of slashing energy subsidies.

In a late Thursday meeting, the CBE’s Monetary Policy Committee (MPC) hiked the overnight deposit and lending rates from 16.75 to 18.75 percent and from 17.75 to 19.75 percent, respectively.

Four leading investment banks and think tanks ruled out a rate hike, arguing that raising the interest rates would not be effective anymore in containing an inflation triggered by higher production cost after the float along with other reforms, not an increase in demand.

Since November, inflation has accelerated in Egypt, where half of the population is living near or below poverty line, to the highest level in decades on the back of the pound's flotation, VAT introduction and subsidy cuts.

All these measures were necessary for Cairo to clinch a $12 billion three-year loan agreement with the International Monetary Fund (IMF).

To tame the soaring inflation, the CBE’s decided in its previous meeting on May 21, to increase the overnight deposit and lending rates by 200 basis points from 14.75 percent to 16.75 percent, and from 15.75 percent to 17.75 percent, respectively.

This was the first action since the 300 bps hike on the same day of the pound's float in November.