– The Central Bank of Egypt (CBE) raises key interest rates by 600 basis points in a bid to tackle persistent inflationary pressures.
– Transitioning to a flexible inflation targeting regime, CBE emphasizes market-driven exchange rates to unify exchange rate systems and mitigate parallel market challenges.
– Measures announced as part of comprehensive economic reforms in coordination with the government and supported by multilateral and bilateral partners, aiming for sustainable economic development.
The Central Bank of Egypt (CBE) has announced a significant increase in various interest rates, as outlined in an official statement. The overnight deposit rate, overnight lending rate, and the rate of the main operation have all been raised by 600 basis points to stand at 27.25 percent, 28.25 percent, and 27.75 percent, respectively.
This decision was made during a special meeting of the Monetary Policy Committee (MPC) of the Central Bank of Egypt. Additionally, the discount rate has been elevated by 600 basis points to 27.75 percent.
Emphasizing its commitment to maintaining price stability over the medium term, the CBE is transitioning to a flexible inflation-targeting regime. Under this framework, the exchange rate will be determined by market forces, facilitating the unification of the exchange rate and the elimination of backlogs in foreign exchange transactions.
The statement by the Central Bank of Egypt highlights recent economic challenges, including foreign exchange shortages leading to a parallel exchange rate market and global inflationary pressures. These challenges have resulted in persistent inflationary pressures, driving headline inflation to record levels.
The CBE underscores the importance of eliminating the parallel foreign exchange market to mitigate inflation expectations and curb underlying inflation. Consequently, headline inflation is expected to gradually decelerate in the foreseeable future. Notably, the dollar exchange rate on the black market has declined to an average of LE 43 to 46 in recent days.
The announced measures are part of comprehensive economic reforms coordinated with the Government and supported by multilateral and bilateral partners. Adequate funding has been secured to ensure foreign exchange liquidity for the successful implementation of these measures.
While acknowledging that the impact of the rate hikes may take time to fully materialize, the MPC pledges to closely monitor and assess risks surrounding the inflation outlook. Despite these challenges, the CBE remains committed to creating conditions for sustainable economic development.
The MPC believes that the current tightening measures will effectively anchor inflation expectations, bringing the monetary stance to a sufficiently restrictive level. These measures will be upheld as long as necessary to achieve the desired disinflationary path, according to the statement.
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