The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to increase the key policy rates by 100 basis points, bringing the overnight deposit, lending, discount, and main operation rates to 9.25%, 10.25%, 9.75%, and 9.75%, respectively, in an extraordinary meeting on Monday.
According to the CBE, Egypt’s reform programme has placed the economy on a strong footing to weather economic disruptions as they emerge. The hard-won macroeconomic gains have provided the CBE with a strong toolkit to implement its monetary policy and maintain price stability over the medium term and with solid buffers to insulate the economy from excessive volatility.
Nevertheless, global inflationary pressures began to build after the world economy emerged from the disruptions caused by the COVID-19 pandemic. These pressures became amplified with the recent Russia-Ukraine conflict. Rising international commodity prices resulting from further supply chain disruptions in addition to increased risk-off sentiment have added to domestic inflationary pressures as well as external imbalances.
Being keen on safeguarding the achieved macroeconomic stability, the CBE stresses on the importance of the exchange rate flexibility to act as a shock absorber to preserve Egypt’s competitiveness.
Therefore, the MPC decided to raise policy rates by 100 basis points to reign in inflationary pressures while supporting economic activity, taking into account the CBE’s monetary policy horizon of its inflation target of 7% (±2%) on average in the fourth quarter (4Q) of 2022.
After the meeting, the MPC said that the objective of raising policy rates is to anchor inflation expectations and contain second round effects of supply shocks stemming from exogenous factors outside the scope of monetary policy. Achieving low and stable inflation over the medium term supports real incomes and sustains the achieved competitiveness gains of the Egyptian economy.
The MPC stressed that it will continue to closely monitor all economic developments and will not hesitate to utilize all available tools to achieve its price stability mandate over the medium term.