The Central Bank of Egypt raised interest rates on Thursday after its planned meeting. Inflation continues to rise in the North African country.
The bank’s Monetary Policy Committee said it raised its key policy rates by 2%. The committee noted rising inflation in the country, which it blamed in a press release on “disruption to the supply chain at home, the depreciation of the Egyptian pound … and pressure on the demand side”.
Why it’s important: Inflation in Egypt has risen sharply since the beginning of last year, partly due to supply chain disruptions as a result of Russia’s invasion of Ukraine. The Central Bank raised interest rates several times in 2022, including in December, but was unable to curb inflation. Annual headline inflation reached 32.9% in February, driven largely by rising food prices.
The Central Bank of Egypt did not raise interest rates during its last meeting in February.
The Egyptian pound has also fallen against the US dollar recently, as noted by the Central Bank. One dollar traded at 19 Egyptian pounds in October 2022. By January, the rate had reached 24 pounds and is now 30 pounds, according to market data.
Several central banks in the Gulf raised interest rates earlier this month after the US Federal Reserve did the same. The Fed’s aggressive rate hikes targeting inflation are controversial because of the pressure they put on the financial system. Some observers link the high rates to the current global financial turmoil, including the collapse of Silicon Valley Bank.
More information: Egypt’s cabinet approved its budget for the 2023-24 fiscal year on Wednesday. The budget includes 20% more allocations for food subsidies and 24% more for fuel subsidies, according to Daily News Egypt. Parliament still needs to approve the budget.
What’s ahead: The Central Bank’s Monetary Policy Committee will meet again on 18 May.