CBE raises interest rate by 1% in exceptional meeting, Egyptian pound declines significantly

Hossam Mounir
9 Min Read

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided in an exceptional meeting on Monday to raise the basic interest rates by 1% to 9.25% for depositing, 10.25% for lending, and 9.75% for the credit and discount rates and the price of the CBE’s main operation.

After the decision, the official price of the USD at the Central Bank of Egypt (CBE) rose to EGP 18.1519 for buying and EGP 18.2884 for selling, compared to Sunday’s EGP 15.6484 and EGP 15.7786 — an increase between EGP 2.5035 and EGP 2.5098.

Egypt’s CBE Governor Tarek Amer said the pound had undergone a “correction” that would make exports competitive and reflected world and local developments, after the currency fell nearly 14% on Monday.

He told a press conference that inflation in Egypt is imported and that local lenders are strong and have high liquidity levels.

The central bank aims at preserving foreign currency liquidity, Amer added.

In its statement, the MPC said that over the past period, the Egyptian economic reform programme achieved many gains, including raising the efficiency of Egypt’s macroeconomic indicators. This paved the way for facing any challenges and economic turmoil that may arise as a result of external factors.

Furthermore, the gains of the economic reform programme had a great impact on protecting the economy from excessive volatility and crises, and the structural reforms adopted by the CBE and the Egyptian government helped provide exceptional economic measures and stimulus packages over the past two years with the aim of providing support to citizens and easing the burdens on them during the coronavirus pandemic.

Recently, global inflationary pressures began to reappear after the emergence of signs of the global economy recovering from the turmoil caused by the pandemic due to developments in the Russian-Ukrainian conflict.

The noticeable rise in global commodity prices, supply chain disruptions, and rising freight costs, in addition to the fluctuations of financial markets in emerging countries led to domestic inflationary pressures and increased pressure on the external balance.

The MPC emphasised its keenness to maintain macroeconomic stability and its gains, as the CBE believes in the importance of exchange rate flexibility to serve as a tool to absorb shocks and maintain Egypt’s competitiveness.

It added that in light of these developments, and with the CBE’s target inflation rate — which is 7% (± 2%) on average during the fourth quarter (4Q) of 2022 — it decided to raise the basic interest rates of the CBE by 100 basis points.

The MPC stressed that achieving low and stable inflation rates in the medium term is a prerequisite for supporting the purchasing power of Egyptian citizens and achieving high and sustainable growth rates. It also pointed out that it will closely follow all economic developments and will not hesitate to use all its monetary tools to achieve the goal of price stability on the medium run.

In a step accompanying the CBE’s decision, the National Bank of Egypt (NBE) and Banque Misr decided today to offer savings certificates for a period of one year at an interest rate of 18%, following the exceptional decision of the CBE to raise the interest rate by 1%.

Yehia Aboul-Fotouh — the Vice President of the NBE — said that the NBE is offering a one-year certificate with a return of 18% to be paid monthly. The certificate’s categories start from EGP 1,000 and its multiples, and are issued to normal individuals or minors.

Banque Misr also re-issued the new savings ‘Talaat Harb’ certificate for a period of one year with a return of 18% to be paid monthly, with the period calculated from the working day following the purchase.

However, the local market is awaiting the repercussions of the decision to hike the interest rates taken by the CBE this morning on various sectors.

Banks operating in the Egyptian market will start holding intensive meetings to discuss the fate of interest rates on their savings, retail products, and loans.

Interest rates on variable-return certificates and some loan products with pricing that is connected to the basic interest rates of the CBE rose automatically.

In the Egyptian market, there are about 29 variable-return certificates issued by about 24 banks in addition to a large number of variable-return loan products.

In a sudden move the official price of the USD at the Central Bank of Egypt (CBE) rose at the end of the trading session on Monday to EGP 18.1519 for buying and EGP 18.2884 for selling, compared to Sunday’s EGP 15.6484 and EGP 15.7786 — an increase between EGP 2.5035 and EGP 2.5098.

The average price of the USD in local banks, according to the CBE, reached EGP 18.1708 for buying and EGP 18.2683 for selling, compared to Sunday’s EGP 15.6614 and EGP 15.7586 — an increase of about EGP 2.509.

Other major currencies also appreciated, as the Euro rose to EGP 20.05 for buying and EGP 20.16 for selling, compared to EGP 17.23 and EGP 17.52, respectively.

The price of the British Pound also recorded an increase to reach EGP 23.88 for buying and EGP 24.01 for selling.

Regarding the Arab currencies, the Saudi Riyal — the most traded in the Egyptian market — recorded a remarkable increase, reaching EGP 4.84 for buying and EGP 4.86 for selling, compared to EGP 4.18 and EGP 4.19.

The Kuwaiti Dinar also rose to EGP 59.71 for buying and EGP 60.19 for selling. The Emirati Dirham recorded EGP 4.94 for buying and EGP 4.97 for selling.

Alaa Farouk — the Chairperson of the Board of Directors of the Agricultural Bank of Egypt (ABE) — stressed that the Central Bank of Egypt’s (CBE) decision to raise interest rates by 1% represents a positive response and an important step in facing the current global conditions and their effects on the global economy, and the resulting rise in inflation rates and interest rates in all countries of the world.

Farouk affirmed his confidence in the ability of the CBE to use monetary policy management tools efficiently and ably to maintain the stability of the national economy in the face of any urgent challenges as a result of global changes.

Ashraf Al-Kady — the Head of the United Bank — said that the decisions of the CBE are necessary, explaining that it uses its tools to manage the monetary policy wisely in order to face global events.

He added that all foreign currencies were also affected by global events, hence, changes in the interest rate and US dollar value are only natural.

Mohamed Abdel-Aal — a banking expert — said that the economic decisions made by the CBE this morning aim to combat events that are out of the government’s control, namely the Ukrainian-Russian crisis. They also aim to protect the gains of the economic reform programme and absorb new inflationary shocks.

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