Egypt: Central Bank hikes overnight deposit rate to multi-year high in June to curb rising inflation
June 16, 2016
At its meeting on 16 June, the Central Bank of Egypt (CBE) hiked all rates by 100 basis points, lifting the overnight deposit rate to a multi-year high of 11.75%, the overnight lending rate to 12.75% and the main operation rate at 12.25%. The decision mainly aims to combat rising inflation. While the Bank had held rates constant in its April meeting, it had hiked rates by 150 basis points in its March meeting to control high inflation after a notable surprise-devaluation of the pound.
Regarding price developments, the Bank said that both headline and core inflation rose in May and that the monthly price increase over April was notable. According to the Bank, the main drivers of May’s price increase were higher regulated prices, supply shocks, such as higher rice prices, the seasonal impact of Ramadan, as well as the pass-through effect from March’s significant devaluation of the Egyptian pound.
As for economic activity, the Bank stated that Egypt’s GDP grew a revised 4.5% year-on-year in the period from July to December 2015 (previously reported: +3.5% year-on-year). In the Bank’s view, both domestic and external aspects continued to restrain growth in this period. Expenditure-wise, the expansion came solely on the back of domestic demand, while the external sector was a drag on growth. Sector-wise, growth was driven by construction, real estate, internal trade and general government sectors, while it was dragged down by tourism and the industrial sector, particularly mining activity.
The Central Bank confirmed its commitment to a price stability mandate and said that it will monitor the impact of economic developments—especially changes in fiscal policy—on the inflation outlook and that it stands ready to modify its key rates to preserve price stability. The next monetary policy meeting is scheduled for 28 July.