Egypt raises interest rates by 1 pct to curb inflation

Egypt decided to raise the interest rates by 100 basis points in a bid to contain high inflation, the Central Bank of Egypt (CBE) announced on Thursday.

The deposit and lending rates were raised to 19.25 percent and 20.25 percent, respectively, while the rate of the main operation and the discount rate were increased to 19.75 percent, the CBE said in a statement after a meeting of the Monetary Policy Committee.

Egypt's annual urban headline inflation increased to 35.7 percent in June, up from 32.7 percent in May, and the annual core inflation climbed to 41 percent in June from 40.3 percent in May, the CBE noted.

"The annual inflation rates continued to be affected by persistent supply shocks, which led to higher underlying pressures," said the statement.

It said that the growth of the gross domestic product in Egypt is expected to slow down in the fiscal year 2022/2023 ending on June 30, compared to the previous fiscal year, before picking up gradually over the medium term.

The CBE said that in light of the above factors and given the balance of risks concerning the inflation outlook, a rate hike of 100 bps is warranted for easing the inflationary pressure and anchoring inflation expectations around the bank's targets.

It is the second interest rate hike in Egypt this year after a 2-percent rise in late March for the same reasons.

Egypt has been struggling to contain the rising inflation in the past years amid a shortage of foreign currency, partially due to the global economic repercussions of the protracted COVID-19 pandemic and the Russia-Ukraine conflict.

The CBE devalued the Egyptian pound twice in 2022, and the local currency has lost about half its value since March 2022, with one U.S. dollar now officially exchanged for about 31 Egyptian pounds.

According to the CBE statistics, Egypt's foreign debt reached 165.3 billion dollars by the end of March, registering a 4.8-percent increase from the same period in the previous year.

The Egyptian government is now focusing on attracting foreign investments and boosting the tourism sector as the key sources of hard currency to deal with the country's economic challenges.