Egyptian pound declines after interest rate increase … CDs at 18% returns
Surprisingly, the Central Bank of Egypt raised the interest rate by about 1 percent today, in an exceptional meeting that preceded the meeting of the Monetary Policy Committee scheduled for next Thursday, in an attempt to absorb the wave of inflation, bearing in mind that the last time the Central Bank of Egypt raised the interest rate was in 2017.
This measure was followed by a 12 percent decline in the Egyptian pound’s exchange rate, the first movement of the Egyptian currency in 5 years.
The Monetary Policy Committee of the Central Bank of Egypt decided, in its extraordinary meeting today, to raise the overnight deposit and lending rates and the central bank main operation rate by 100 basis points to reach 9.25 percent, 10.25 percent and 9.75 percent, respectively. The credit and discount rates (which are the rates that banks deal with the Central Bank ) were also raised by 100 basis points to reach 9.75 percent.
The Central Bank of Egypt said that recently, global inflationary pressures began to re-emerge following a global economy from the Coronavirus pandemic. These pressures were due to the developments of the Russian-Ukrainian conflict, with risks related to the global economy having increased as a result.
On top of these pressures comes the noticeable rise in global commodity prices, supply chain disruptions and rising freight costs, in addition to the fluctuations in financial markets in emerging countries.
This led to domestic inflationary pressures and increased pressure on the external balance, according to the statement.
It added that in light of these developments; Given the central bank’s target inflation rate of 7 percent on average during the fourth quarter of 2022, the Monetary Policy Committee decided to raise the key interest rates of the Central Bank by 100 basis points.
Consumer price inflation in Egyptian cities had jumped on an annual basis to 8.8 percent in February, while this rise was 7.3 percent in January. The inflation rate recorded in Egyptian cities during February was the highest since about 3 years ago, when it reached 9.4 percent in June 2019.
Egyptian Prime Minister Dr. Mostafa Madbouly issued a decision setting the selling price of bread at 50 piasters for a loaf weighing 45 grams, a fixed price for three months.
Egyptian Pound exchange rate
After the extraordinary meeting, the exchange rate of the pound moved. Refinitiv data showed a decline in the Egyptian currency to trade at 17.42-17.52 against the dollar.
“Bloomberg” reported that the Egyptian pound’s exchange rate fell by about 12 percent. The selling price of the dollar in the National Bank of Egypt reached 17.50 and 17.40 to buy it, while its selling price reached 17.52 pounds in the Arab African International Bank, “HSBC” and the Suez Canal Bank, compared to 17.42 when buying it.
Certificates of Deposits (CDs)
Shortly after the decline of the Egyptian currency and the decision of the Central Bank, Al-Ahly and Misr banks decided to offer new one-year Certificates of Deposits at an annual interest rate of about 18 percent.
This development comes at a time when emerging markets are witnessing an outflow of hot money as a result of fears of the escalation of the Russian-Ukrainian war.