Central Bank of Egypt hikes benchmark rates to curb inflationary pressures

Cairo, Egypt, Capital Markets in Africa — Central Bank of Egypt raised interest rates for the first time in more than a year in an attempt to curb inflation, according to press release by the central bank.  The last change to the benchmark rate was a half percentage point cut in January, when the central bank cited a weaker inflation outlook following the plunge in global energy prices.

The Monetary Policy Committee, headed by Governor Tarek Amer, raised the benchmark overnight deposit rate by 50 basis points to 9.25 percent.  The overnight lending rate and discount rate were also increased by the same amount to 10.25 percent and 9.75 percent respectively.

Furthermore, the press statement stated that the annual headline CPI jumped to 11.08 percent in November from 9.70 percent in October, partly on the back of unfavorable base effect from last year, while core inflation increased to 7.44 percent from 6.26 percent in October.  Looking ahead, while upside risks to the inflation outlook are mitigated by contained imported inflation, in light of broad-based declines in international commodity prices, underlying domestic inflationary pressures could push up inflation expectations, the bank statement emphasized.

On the economic prospect, the MPC noted that Egyptian growth is robust but the downside risks and uncertainty that surround the global economy on the back of softening growth in emerging markets and challenges facing the Euro Area could pose downside risks to domestic growth prospect.

In its statement, the central bank said key elements of the framework it’s working on with the government include narrowing the country’s budget deficit to “sustainable levels” and avoiding double-digit inflation over the medium-term. They also agreed to work toward reducing Egypt’s trade deficit “by initiating a strategy aimed at encouraging local production to meet domestic market needs and enhance imports substitutions.”

“The MPC judges that a rate hike is warranted to address inflationary pressures and anchor inflation expectations,” the bank said in the statement.

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