Egypt: Central Bank turns more aggressive and delivers a 300 basis point hike in December
At its last scheduled meeting of 2022 on 22 December, the Central Bank of Egypt (CBE) delivered a whopping 300 basis point hike, surprising markets, which had expected a 200 basis point increase. As a result, the overnight deposit, overnight lending and main operations rates stood at 16.25%, 17.25% and 16.75%, respectively. The sharp increase came on the heels of Octobers 200 basis point raise, bringing the cumulative increase since March 2022 to 800 basis points.
The move was driven by the continued acceleration of both headline and core inflation, with both rising to levels not seen since late 2017 in November. This was driven in large part by the Central Banks decision in late October to allow the Egyptian pound to sharply depreciate in order to secure a much-needed deal with the IMF. Meanwhile, the Bank released estimates that showed GDP expanded at an annual rate of 4.4% in July–September 2022, accelerating from the prior quarters 3.3%. The CBE added that high-frequency indicators suggested that the economy was robust in the final quarter of 2022, providing more room for the aggressive rate increase.
The CBE did not provide explicit guidance regarding future policy moves. However, it stated once again that it would “closely monitor all economic developments and will continue to utilize all available monetary policy tools to anchor inflation expectations […] and will continue to pursue its price stability mandate”. The Bank kept the current 5.0–9.0% inflation target band until Q4 2024 and will then move to a 3.0–7.0% target range by Q4 2026.
The next scheduled monetary policy meeting is set for 2 February 2023.