CAIRO - 22 December 2022: The Monetary Policy Committee (MPC) decided, Thursday, to raise the Central Bank of Egypt’s (CBE) interest rates by 300 basis points, or 3 percent, during its last meeting in 2022.
The overnight deposit rate, overnight lending rate, and the rate of the main operation were raised to 16.25 percent, 17.25 percent, and 16.75 percent, respectively.
The discount rate was also raised to 16.75 percent.
The MPC attributed its decision to raise the rates to contain the inflationary pressures and to steer annual headline inflation rates towards its upcoming targeted levels.
The annual headline urban inflation continued to accelerate further during 2022 Q4, reaching 18.7 percent in November 2022, its highest rate since December 2017.
“Similarly, annual core inflation continued its upward trend that started over a year ago, recording 21.5 percent in November 2022, its highest rate since November 2017,” it added.
The statement noted that November’s 2022 inflation figure was mainly impacted by the depreciation of the Egyptian pound that took place in October 2022, as well as the higher broad money growth and the ongoing repercussions of the Russia-Ukraine conflict.
Since the beginning of calendar year 2022, annual food inflation has been mainly driven by core food inflation. Moreover, the annual inflation of services was mainly driven by expenditure on restaurants and cafes, while the increase in retail items was broad-based, according to the MPC.
Regarding the economic activity, the MPC stated that it increased during the third quarter of 2022 to record a preliminary figure of 4.4 percent compared to 3.3 percent in 2022 Q2.
“Real GDP growth was primarily driven by the positive contributions of agriculture, wholesale and retail trade and tourism,” the MPC said.
It added that the most leading indicators continue to register positive growth rates in 2022 Q4.
“Meanwhile, the unemployment rate recorded 7.4 percent in 2022 Q3, slightly up from the 7.2 percent recorded in the previous quarter,” it said.
Upon these developments, the Central Bank of Egypt (CBE) maintained the targeted inflation rates at an average level of 7 percent (±2 percent) during the fourth quarter of 2024.
The CBE set an average rate of 5 percent (±2 percent) for the targeted inflation rates during the fourth quarter of 2026.
Egypt is witnessing an inflationary wave that has been accelerating almost every month since the beginning of this year, as a result of the high costs of importing energy and food, due to the Russian-Ukrainian crisis, and the Corona epidemic crisis.
Egypt reached an agreement with the International Monetary Fund (IMF), in November, worth $3 billion. It also devalued its currency twice, in March and late October, after an exit wave of hot money on the successor to the Ukraine crisis and the US interest rate hike on the dollar.
On Oct. 27, the Central Bank of Egypt (CBE) announced the issuance of several decisions related to the exchange rate, interest rates and letters of credit for importing. The decisions which were taken in an exceptional meeting included raising the Central Bank of Egypt’s (CBE) interest rates by 200 basis points or 2 percent.
This led to a total rise in interest rates of 500 basis points in Egypt during 2022, coinciding with the Federal Reserve increasing interest rates by a total of 375 basis points from the beginning of the year until Nov. 3.
The CBE’s committee also announced moving to a durably flexible exchange rate regime, leaving the forces of supply and demand to determine the value of the Egyptian pound against other foreign currencies, which resulted in a 14 percent decrease in the exchange rate that day.
Moreover, the CBE began the process of gradually repealing the use of Letters of Credit for import finance, to be fully canceled in December 2022.
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