How interest rate hikes affect Egypt’s economy
The central bank may raise rates further by 100 to 200 basis points in 2022 to be in line with tightening global monetary policies. Yields on T-bills are set to rise.
Egypt’s authorities are drawing on a gradual tightening of monetary policy in a bid to contain inflation and sustain economic growth. The Central Bank of Egypt (CBE) has raised overnight interest rates by 3% since March 21, seeking measures to ease the repercussions of the Russia-Ukraine war, which has rattled the global economy since February.
The CBE’s Monetary Policy Committee (MPC) increased overnight rates by 2% on May 19 to 11.25% for deposits and 12.25% for lending. Earlier this month, the US Federal Reserve raised its policy rate by 0.50%.
“The recent rate hike comes in line with tightening global monetary policies in a bid to curb high inflation. In our opinion, the recent hike from CBE aims to serve two purposes: First, to maintain the attractiveness of the Egyptian pound by keeping up a spread in interest rates between the pound and international currencies, mainly the US dollar; second, to assist in curbing inflation,” Dina Ennab, sovereign analyst at Capital Intelligence Ratings, told Al-Monitor.
Ennab said that high levels of inflation could have a detrimental impact on any economy, as it partially erodes purchasing power and hence reduces private consumption, which is a major component of gross domestic product (GDP).
