The Central Bank of Egypt raised its policy rates by 100 basis points on Thursday, a move no part of the surveyed consensus expected. The Monetary Policy Committee lifted the overnight deposit rate to 20 percent from 19 percent, the overnight lending rate to 21 percent from 20 percent, and the rates on the main operation and the discount window to 20.5 percent from 19.5 percent, Reuters reported. The new rates take effect on November 1. It is the bank’s first increase since the 600 basis point rise of March 2024, and it reverses in full the 100 basis point cut of February 12, after which the committee held at five consecutive meetings.
The committee called the step preemptive. Annual urban inflation eased to 13.9 percent in September from 14.5 percent in August, and core inflation eased to 14.1 percent from 14.9 percent, but monthly headline inflation picked up to 1.3 percent in September and the bank said a more restrictive stance is needed to anchor expectations and keep inflation converging toward its target of 7 percent, plus or minus 2 points, on average in the fourth quarter of 2027. Its nowcast puts third quarter growth broadly steady near the 4.7 percent recorded in the second quarter. The statement named the risks as a regional conflict lasting longer than first envisaged, with spillovers to energy and commodity prices, tighter global financial conditions, and pass-through from fiscal consolidation that could exceed expectations.
The currency is the immediate context. The pound fell to a record low this week, the dollar exceeding 56 pounds at the central bank for the first time on Monday, October 26, the same day foreign and Arab investors recorded net sales of about 664 million dollars of Treasury bills and bonds, Zawia3 reported. A hike defends the carry that keeps those investors in Egyptian paper, at the cost of higher debt service for the state and dearer credit for businesses whose borrowing is priced off the corridor. The committee meets once more this year, on December 17.