The Central Bank of Egypt has raised the benchmark interest rate by 100 basis points today, citing global inflationary pressures and the Russia-Ukraine crisis as cause for the new hike. This announcement is contained in a statement released after the Monetary Policy Committee meeting on Monday, moving the overnight deposit rate from 9.25% to 10.25%.
According to the CBE, this upward increase was necessitated supply disruption from the Ukraine conflict, in addition to the already precarious global economy that was witnessing global inflationary pressures caused by the COVID19 pandemic. When paired as well with the rising international commodity prices resulting from further supply chain disruptions in addition to increased risk-off sentiment have added to domestic inflationary pressures as well as external imbalances.
It is the first time the Central Bank of Egypt is increasing its key interest rate since 2017. Its headline inflation in February was 8.8%, the highest in the past three years.
The rating agency, in its report, said that Egyptian authorities have an option to strengthen the country’s external situation by raising interest rates and depreciating the currency, among other options.
The vast majority of Egypt’s wheat is imported from Russia and Ukraine, which enables the government to provide bread subsidies to millions. The escalating price of grain as a result of the war is putting pressure on the government’s finances.