Capital Economics expects Egypt's central bank to hike interest rates by 50bp during March

CAIRO - 10 March 2022: Capital Economics expected the the Central Bank of Egypt (CBE) to raise the interest rates by 50bp, to 8.75 percent, at its Monetary Policy Committee’s (MPC) meeting during March.

 

It attributed its anticipation to the increase of inflation Egypt witnessed during February to hit 10 percent, compared to 4.9 percent in the same month of 2021.

 

Capital Economics also foresaw in a report the interest rates in Egypt to be increased by 200bp  by the end of 2023, taking the overnight deposit rate to 10.75 percent.

 

As for urban inflation, it hiked to 8.8 percent in February, surging to its highest in nearly three years, up from 7.3 percent in February 2022. February's inflation figure was the highest since June 2019.

 

On a monthly basis, inflation recorded 121.4 points in February 2022,  recording a 2 percent increase compared to January 2022, the Central Agency for Public Mobilization and Statistics (CAPMAS) said.

 

“Looking forward, inflation will almost certainly increase further and breach the upper bound of the inflation target on the back of the surge in global food and energy prices,” Middle East and North Africa Economist at Capital economics, James Swanston stated in the report.

 

The CBE aims to achieve an inflation rate of 7 percent (±2) percentage points on average during the fourth quarter of 2022.

 

Swanston elaborated that the war in Ukraine has pushed wheat prices to all-time highs this week and Egypt is particularly vulnerable. Egyptian officials have confirmed that key subsidies on bread will be scaled back, with a formal announcement expected by the end of March. 

 

“On top of this, the government will probably continue to hike local fuel prices,” he noted.

 

 

In February,  The MPC decided to keep the CBE’s overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged during its first meeting in 2022 for the 10th time in a row at 8.25 percent, 9.25 percent, and 8.75 percent, respectively.

 

 

 The discount rate was also kept unchanged at 8.75 percent.