Egypt: Central Bank hikes rates by 150 basis points to anchor inflation expectations after sharp pound devaluation
March 17, 2016
At its 17 March monetary policy meeting, the Central Bank of Egypt (CBE) hiked the overnight deposit rate by 150 basis points from 9.25% to 10.75%. The decision came as a surprise to market analysts, who had expected a smaller increase. In addition, the CBE increased the overnight lending and main operation rates by 150 basis points to 11.75% and 11.25%, respectively.
According to the CBE, the decision was “warranted to anchor inflation expectations” and offset the impact on prices of the 13% devaluation of the Egyptian pound announced on 14 March. The rate hike will likely contribute to increasing the pound’s attractiveness for investors, thus reducing pressure on the currency and alleviating the foreign currency crunch that has hindered economic activity.
Regarding price developments, the Bank said that both inflation and core inflation fell to the single-digits in February, “which supported the timing of the depreciation decision.” The Central Bank confirmed its commitment to a price stability mandate and to avoiding double-digit inflation rates. Moreover, the Bank said that it will monitor the impact of economic developments on the inflation outlook and that it stands ready to modify its key rates to preserve price stability.