Egypt: Central Bank of Egypt Hikes Key Interest Rates By 2 Percent

7 November 2022
The Exchange Africa
By Albert Nangara

Egypt's central bank said that it raised key interest rates by 2 per cent in a bid to combat the country's surging inflation

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) has increased the key interest rates by two per cent (200 bps) to reach 13.25 per cent, 14.25 per cent, 13.75 per cent, and 13.57 per cent for the overnight deposit rate, the overnight lending rate, the rate of the main operation, and the discount rate, respectively.

They also announced a series of economic measures, including a switch to a more durably flexible exchange rate. The apex bank said the exchange rate switch would now allow international markets to "determine the value of the Egyptian pound against other foreign currencies."

  • Egypt's central bank has announced that it raised interest rates by 2 per cent and switched to a more flexible exchange rate system.
  • The institution said October 27, 2022 it had raised the lending rate, the deposit rate and the discount rate.
  • The decision aims to uphold the CBE's mandate of ensuring price stability in the local market over the medium term.

Egypt's annual headline inflation rose to 15.3 per cent in September, up from eight per cent in September 2021, the highest level seen since recording 15.7 per cent in November 2018.

According to the CBE, the decision prioritizes price stability and building up adequate and sustainable levels of foreign exchange reserves.

"This will serve as a catalyst for the rejuvenation of economic activity in the medium term. Additionally, the CBE will work towards building the foundation for a derivatives market to further deepen the foreign exchange market and enhance its liquidity," the CBE explained.

Following the announcement, according to data provided by Egypt's central bank, the Egyptian pound dropped to a record low against the US dollar from 19.75 to around 22.99. Since the beginning of the year, the Egyptian pound has lost around 46 per cent of its value against the US dollar.

The CBE also announced in a statement that it will begin a process of phasing out Letters of credit (LCs) for import finance by December 2022.

  • It also aims to anchor inflation projections and also to contain demand side pressures and higher broad money growth as well as the second round effects of supply shocks.
  • Egyptian Prime Minister Mostafa Madbouly announced an exceptional bonus to public employees and pensioners of the state administrative apparatus and state-affiliated companies at a value of EGP 300 to meet the cost of living. The government also froze household electricity prices through June 2023.

Meanwhile, the National bank of Egypt (NBE) issued new three-year-maturity saving certificates with an annual yield of 17.25 per cent.

Banque Misr also has raised the annual yield of the three-year saving certificates to 17.25 per cent.

In a press conference, Egyptian Prime Minister Mostafa Madbouly announced an exceptional bonus to public employees and pensioners of the state administrative apparatus and state-affiliated companies at a value of EGP 300 to meet the cost of living. The government also froze household electricity prices through June 2023.

Minister of Finance Mohamed Maait said more than 10.5 million pensioners will benefit from the decision at a total cost of EGP 32 billion.

The minimum wage for public employees, who numbered more than five million according to 2017 figures, was last raised in July 2022 to EGP 2,700 up from 2,400.

The minimum wage for workers in the private sector was raised to EGP 2,400 earlier this year.

In March, President Abdel-Fattah El-Sisi ordered increasing the minimum wage for public employees from EGP 2,000 to EGP 2,400 as well as raising pensions by 13 per cent.

Madbouly further explained that the decision to raise the minimum wage for public employees comes as part of the government's new EGP 67 billion social protection package, as per President El-Sisi directives during the recent Economic Conference.

During the meeting, El-Sisi also gave a directive to appoint 30,000 teachers annually for five years to meet the needs of the education sector.

In addition, the government was to pay the teachers an additional incentive in a bid to develop and improve their skills at a total cost of EGP 3.1 billion.

Egypt's national educational system has been suffering from a shortage in qualified teachers, leading the Ministry of Education to hire part-time teachers paid for each class in the school year 2021/22 in all grades.

In August the CBE instructed banks to remove maximum limits for deposits by individuals and companies at bank branches and ATMs.

The CBE also raised the cap for daily withdrawals from bank branches for both individuals and companies to EGP 150,000, up from EGP 50,000, while keeping the maximum limit for withdrawals from ATMs at EGP 20,000.

The CBE said this decision was made given that the COVID-19 crisis has receded.

In March 2020, in an effort to contain the impacts of the pandemic, the CBE set the daily limit for cash deposits and withdrawals from bank branches at EGP 10,000 for individuals and EGP 50,000 for enterprises, with the exception of withdrawals by entrepreneurs for worker disbursements.

The CBE also set a limit of EGP 5,000 for cash deposits and withdrawals from ATM machines, which it said aimed to reduce crowding, particularly during payroll and pension disbursements.

However, a month after, the CBE raised the daily limit for cash withdrawals from ATMs to EGP 20,000, up from EGP 5,000, and from banks to EGP 50,000, up from EGP 10,000.

Meanwhile, recently the International Monetary Fund reached a preliminary agreement with the Egyptian government that paves the way for the Arab nation to access a US$3 billion loan.

According to IMF officials a staff agreement between the Egyptian government and IMF leaders had been reached following months of talks, as Egypt struggles to combat surging inflation caused, in part, by the war in Ukraine.

In a statement issued Thursday, Egypt's IMF mission chief Ivanna Vladkova Hollar said the 46-month deal, known as an Extended Fund Facility Arrangement, allows Egypt access to the U$3 billion loan on the condition it implements a series of economic reforms.

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