Egypt hikes key interest rates again by 200 points

The Central Bank of Egypt (CBE) on Thursday hiked its benchmark overnight deposit rate by 200 basis points, the bank’s Monetary Policy Sector said in a statement.

The overnight deposit rate rose to 18.75 percent from 16.75 percent, the lending rate to 19.75 percent from 17.75 percent and the rate of CBE’s main operation was also raised by 200 bps to 19.25 percent from 17.25 percent, the statement said.

While the country’s annual core inflation continued to be supported by favorable base effects since March 2017, dropping to 30.6 percent in May from 33.1 percent in February, the monthly core inflation rose to 2 percent from 1.1 percent a month earlier.  

The target inflation rate is 13 percent rate by Q4 2018 to a single digit rate going forward.

“Higher prices of hydrocarbon products effective June 29, 2017, higher value added taxes effective July 1, 2017, higher electricity prices scheduled for July 2017 as well as other potential regulated price adjustments further increase inflationary pressures.” the bank said.

Also, the balance of risks surrounding the global inflation outlook is also a factor that led to the decision to increase the interest rate.

CBE’s unexpected interest rate hike, which comes after a similar hike by 200 bps two months ago, is an attempt to offset surging inflation rates.

On June 29, Egypt has raised fuel prices by 5.6 to 55 percent as part of its plan to cut petroleum products’ subsidies, Argaam reported earlier.

The floatation of the Egyptian pound last November has cut the value of the currency in half. The country’s three-year $12 billion International Monetary Fund loan agreement has required economic reforms such as tax hikes and subsidy cuts.

Write to Rasha Abo AlSoud at rasha@argaam.com