Egypt raises interest rates as local currency depreciates against US dollar
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The Central Bank of Egypt (CBE) announced an interest rate hike of 600 basis points during an unscheduled meeting on Wednesday morning.
This decision accompanies a shift towards allowing market forces to determine the exchange rate, a transition towards an inflation-targeting regime.
As the markets opened in Cairo at 10:35 a.m., Egypt’s pound experienced a sharp decline against the dollar, plummeting below 40 pounds to the dollar from its stable position of around 30.85 pounds over the past year.
The central bank in a released statement, emphasized the importance of unifying the nation’s exchange rates, describing it as a crucial step to alleviate the severe shortage of hard currency and to secure a new multi-billion-dollar loan from the International Monetary Fund (IMF).
The apex bank said it has increased the overnight lending rate to 28.25% and the overnight deposit rate to 27.25%, as part of its strategy to accelerate monetary tightening and ensure a reduction in underlying inflation, which has surged to almost 30%.
The IMF had previously urged Egypt to tighten its monetary policies to counter inflation and adopt a more flexible official exchange rate.
