Egypt’s central bank hiked overnight interest rates by a greater-than-expected 300 basis points on Thursday, warning that inflationary pressures were building.
The rate hike may signal the central bank may be preparing for a further weakening of the currency.
The bank’s Monetary Policy Committee (MPC) raised the deposit rate to 16.25% and its lending rate to 17.25%, it said in a statement.
“The MPC judges that demand side pressures have recently increased,” it said, citing activity greater than the economy’s capacity, higher inflation numbers and faster growth of money supply.
A poll of 12 analysts had forecast the bank would raise rates by a median 200 bps.
The central bank most recently raised rates by 200 bps at a surprise meeting on Oct. 27, the same day it devalued its currency by 14.5% and announced it had signed a $3 billion financial support package with the International Monetary Fund.
“The objective of raising policy rates is to anchor inflation expectations and contain demand side pressures, higher broad money growth and second round effects of supply shocks,” the MPC statement added.
Since the October raise hike, Egypt has come under renewed pressure to raise interest rates and weaken its currency after the gap between the official price of the currency and the black market continued to widen.
“I think Egypt will implement a further depreciation before 1 January,” said Jaap Meijer, an analyst with Arqaam Capital. “A rate hike will make this easier now to ensure some capital inflows once the devaluation is implemented.”
The central bank raised interest rates hours before both of its two big devaluations this year, one in March and the other in October. The currency market is now closed for the weekend and will not reopen until Sunday morning.
Egypt’s annual urban consumer inflation quickened to a five-year high of 18.7% in November from 16.2% in October. Core inflation to accelerated 21.5% from 19.0% in October.
The central bank has an inflation target of between 5% and 9% for the fourth quarter of 2024, the statement said.
