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MPC raises key policy rates by 200 basis points against continued global challenges

Until the start of the Russia/Ukraine conflict, Egypt’s MPC had not changed interest rates for 10 consecutive meetings

By: Business Today Egypt

Thu, May. 19, 2022

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) has raised the CBE’s rates once more, citing global financial conditions including concerns rising from China’s latest COVID-19 lockdowns as possibly aggravating global supply chain issues.

The MPC has now raised the overnight deposit rate by 11.25%, overnight lending rate by 12.25%, and the rate of the main operation by 200 basis points to 11.75%.

The discount rate was also raised by 200 basis points to 11.75%.

“Global economic activity has slowed down due to ongoing tensions between Russia and Ukraine. Trade sanctions imposed on Russia and corresponding supply-chain bottlenecks have elevated global commodity prices, such as international prices for oil and wheat, with the latter’s global supply also impacted by adverse weather conditions and poor harvests in select regions,” wrote an official statement.

Until the start of the Russia/Ukraine conflict, Egypt’s MPC had not changed interest rates for 10 consecutive meetings.

The statement elaborated on global financial conditions tightening, mentioning how other major central banks have continued to both tighten policy rates and reduce asset purchase programs with the aim of containing increased inflationary concerns in their respective countries.

Prior to the Russia/Ukraine conflict, Egypt’s economic activity saw positive growth in Q4 of 2021 and was expected to continue in this trajectory, recording a preliminary year-on-year growth rate of 8.3%, the second highest real GDP growth rate since Q3 2002, the CBE explained.

“Recently, most leading indicators for economic activity have started to gradually normalize, and are expected to continue this trend over the near term, as the strong positive base effect diminishes. Going forward, economic activity will continue to expand albeit at a slower-than previously projected pace,” it concluded.