The Central Bank of Egypt said in a statement this morning that the overnight deposit and lending rates and the central bank’s main operation rate were raised by 200 basis points.
The Central Bank announced that after the extraordinary meeting of the Monetary Policy Committee, the overnight deposit and lending interest and the price of the main operation of the Central Bank will be raised to 13.25%, 14.25% and 13.75%, respectively.
The Monetary Policy Committee’s decision also included raising the credit and discount rate by 200 basis points to reach 13.75%.
The Central Bank expected that the increase in global and local prices would lead to a higher general inflation rate than its target by the Central Bank, which amounts to 7% (± 2 seminal points) on average during the fourth quarter of 2022.
He stressed that the objective of raising interest rates is to contain the inflationary pressures caused by the demand side, the high rate of domestic liquidity growth, inflationary expectations and the secondary effects of supply shocks.
He continued, “The Monetary Policy Committee will continue to announce the targeted rates of inflation, which began in 2017, in line with the targeted downward path of inflation rates.”
The policy of inflation targeting succeeded in reducing inflation rates until the appearance of the recent global shocks.
He noted that achieving low and stable inflation rates in the medium term supports the real income of the citizen and preserves the competitive gains of the Egyptian economy.
The Central Bank will closely follow all economic developments and will not hesitate to use all its monetary tools to achieve the goal of price stability.
The Central Bank said in the statement announcing the movement of the exchange rate that the global economy faced many shocks and challenges that it had not seen in years.
Recently, global markets were exposed to the spread of the Corona pandemic and closure policies, then the Russian-Ukrainian conflict ensued, which had dire economic repercussions.
This caused pressure on the Egyptian economy, as it faced an exit from foreign investors’ capital, as well as an increase in commodity prices.
The Central Bank said that reform measures have been taken to ensure macroeconomic stability and achieve sustainable and comprehensive economic growth. To this end, the exchange rate will reflect the value of the Egyptian pound against other foreign currencies through the forces of supply and demand within the framework of a flexible exchange rate system, giving priority to the central bank’s primary objective of achieving price stability, and thus, this will enable the Central Bank of Egypt to work on creating and maintaining levels Sufficient international reserves.
The Central Bank will gradually cancel the instructions issued on February 13, 2022, regarding the use of documentary credits in import financing operations, until the completion of their complete cancellation in December 2022.
This is an incentive to support economic activity in the medium term. The Central Bank of Egypt will also work on building and developing the financial derivatives market with the aim of deepening the foreign exchange market and raising the levels of liquidity in foreign currency.