The Monetary Policy Committee of the Central Bank of Egypt (CBE) decided, on Thursday, to increase its interest rates by 1%. This resulted in the overnight deposit and lending return rates rising by 100 basis points each, reaching 19.25% and 20.25%, respectively. The credit and discount rates were also raised by 100 basis points, reaching 19.75%.
The Central Bank of Egypt cited the reasons for this interest rate hike after maintaining unchanged rates for three consecutive times in 2023. They pointed out that the annual rate of general inflation in urban areas had surged to 35.7% in June 2023 from 32.7% in May 2023. Additionally, the annual rate of core inflation had risen to 41.0% in June 2023 from 40.3% in May 2023, driven by widespread increases in consumer price index items due to persistent supply shocks.
Considering these factors and the balance of risks surrounding inflation, the Monetary Policy Committee decided to raise the basic interest rates by 100 basis points (1%) at the Central Bank to mitigate inflationary pressures and control inflation expectations.
The committee believes that inflation rates are expected to peak in the second half of 2023 and then gradually return to the target inflation rates with the support of the implemented restrictive monetary policies.
Furthermore, the course of basic interest rates will be influenced by expected inflation rates rather than the current prevailing inflation rates. Globally, commodity price expectations continued to decline compared to previous estimates presented to the committee in June 2023. However, actual oil prices rose in the past month. Inflation expectations also decreased in some major economies, though they still remain above target levels.
Regarding the labor market, the unemployment rate decreased to 7.1% during the first quarter of 2023, compared to an average of 7.2% in the previous quarter, mainly due to the increase in the number of workers.
