Egypt raises interest rates as local currency depreciates against US dollar

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.