The Central Bank of Egypt (CBE) announced on Thursday raising interest rates by 2 per cent (200 basis points), during an unscheduled meeting of its monetary policy committee.
The CBE set the overnight lending rate at 14.25 per cent, the overnight deposit rate at 13.25 per cent, and the rate of the main operation, and the discount rate at 13.75 per cent, the bank said in a statement.
The goal of raising the interest rates is to contain the inflationary pressures generated by demand, the high growth rate of domestic liquidity, and the inflationary expectations and secondary effects of supply shocks, the CBE stressed in the statement.
Meanwhile, the CBE said it would start a process of gradually repealing a directive implemented earlier this year mandating the use of letters of credit to finance imports, and would aim to remove it completely by December.
In addition, the bank will work on establishing and developing a financial derivatives market for deepening the forex market and increase the foreign liquidity rate.
The exchange rate will reflect the value of the Egyptian pound against other foreign currencies via supply and demand, it said. This will take place with a flexible exchange rate, giving priority to the CBE’s major objective, namely achieving price stability, in a manner likely to enable the bank to build and maintain sufficient levels of foreign reserves.
The CBE also said that the monetary policy committee would carry on with announcing inflation targets, a practice that started in 2017, in consistency with the targeted downward. The bank will also follow up the economic developments, and won’t hesitate to use its monetary tools to achieve the goal of price stability.
