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).